[Federal Register Volume 75, Number 73 (Friday, April 16, 2010)]
[Proposed Rules]
[Pages 20044-20073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-8274]



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Part II





Department of Agriculture





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Rural Business-Cooperative Service



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7 CFR Parts 4279, 4287 and 4288



Biorefinery Assistance Guaranteed Loans; Repowering Assistance Payments 
to Eligible Biorefineries; Subpart B--Advanced Biofuel Payment Program; 
Proposed Rules

  Federal Register / Vol. 75 , No. 73 / Friday, April 16, 2010 / 
Proposed Rules  

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DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

7 CFR Parts 4279 and 4287

RIN 0570-AA73


Biorefinery Assistance Guaranteed Loans

AGENCY: Rural Business-Cooperative Service, USDA.

ACTION: Proposed rule.

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SUMMARY: Rural Business-Cooperative Service, a mission area within the 
U.S. Department of Agriculture, is proposing a guaranteed loan program 
for biorefineries. The proposed rule will establish guaranteed loan 
regulations for the development and construction of commercial-scale 
biorefineries and for the retrofitting of existing facilities using 
eligible technology for the development of advanced biofuels.

DATES: Comments on the proposed rule must be received on or before June 
15, 2010. The comment period for the information collection under the 
Paperwork Reduction Act of 1995 continues through June 15, 2010.

ADDRESSES: You may submit comments to this rule by any of the following 
methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Submit written comments via the U.S. Postal Service 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, STOP 0742, 1400 Independence Avenue, SW., 
Washington, DC 20250-0742.
     Hand Delivery/Courier: Submit written comments via Federal 
Express Mail or other courier service requiring a street address to the 
Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, 300 7th Street, SW., 7th Floor, Washington, 
DC 20024.
    All written comments will be available for public inspection during 
regular work hours at the 300 7th Street, SW., 7th Floor address listed 
above.

FOR FURTHER INFORMATION CONTACT: Energy Branch, Biorefinery Assistance 
Program, U.S. Department of Agriculture, 1400 Independence Avenue, SW., 
Stop 3225, Washington, DC 20250-3201; telephone (202) 720-1400.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This proposed rule has been reviewed under Executive Order (EO) 
12866 and has been determined to be economically significant by the 
Office of Management and Budget. The EO defines a ``significant 
regulatory action'' as one that is likely to result in a rule that may: 
(1) Have an annual effect on the economy of $100 million or more or 
adversely affect, in a material way, the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or Tribal governments or 
communities; (2) create a serious inconsistency or otherwise interfere 
with an action taken or planned by another agency; (3) materially alter 
the budgetary impact of entitlements, grants, user fees, or loan 
programs or the rights and obligations of recipients thereof; or (4) 
Raise novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in this EO.
    The Agency conducted a benefit-cost analysis to fulfill the 
requirements of Executive Order 12866. In this analysis, the Agency 
identifies potential benefits and costs of the Section 9003 program to 
lenders, borrowers, and the Agency. The analysis contains both 
quantitative estimates and qualitative descriptions of the expected 
benefits and costs of the Biorefinery Assistance guaranteed loan 
program. The environmental and energy impacts associated with the 
Section 9003 program were qualitatively assessed.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act 1995 (UMRA) of Public 
Law 104-4 establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and Tribal 
governments and the private sector. Under section 202 of the UMRA, 
Rural Development generally must prepare a written statement, including 
a cost-benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to State, local, or Tribal 
governments, in the aggregate, or to the private sector of $100 million 
or more in any one year. When such a statement is needed for a rule, 
section 205 of UMRA generally requires Rural Development to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the least costly, more cost-effective, or least burdensome alternative 
that achieves the objectives of the rule.
    This proposed rule contains no Federal mandates (under the 
regulatory provisions of Title II of the UMRA) 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 UMRA.

Environmental Impact Statement

    This renewable energy program under Title IX of the 2008 Farm Bill 
has been operated on an interim basis through the issuance of a Notice 
of Funds Availability (NOFA). During this initial round of 
applications, the Agency conducted National Environmental Policy Act 
(NEPA) reviews on each individual application for funding. No 
significant environmental impacts were reported, and Findings of No 
Significant Impact (FONSI) were issued for each approved application. 
Taken collectively, the applications show no potential for significant 
adverse cumulative effects.
    The Agency is preparing a programmatic environmental assessment 
(PEA), pursuant to 7 CFR subpart 1940-G, to analyze the environmental 
effects to air, water, and biotic resources; land use; historic and 
cultural resources, and greenhouse gas emissions affected by the 
Section 9003 proposed rule. The purpose of the PEA is to assess the 
overall environmental impacts of the programs related to the goals of 
the Administration for advancing biofuels production for the purposes 
of energy independence and greenhouse gas emission reductions. The 
environmental analyses will be national in scope and will be supported 
by site by site analysis per each application to the program. Site-
specific NEPA documents prepared for those facilities funded under 
Sections 9003 and 9004 in FY 2008 and/or 2009 will be utilized, to 
forecast likely environmental impacts under the proposed rules. The 
draft PEA will be made available to the public for comment on the USDA 
Rural Business Service's Web site by May 3, 2010, and all comments will 
be addressed as part of any revision of the PEA, or prior to the 
publication of any Finding of No Significant Impact (FONSI).

Executive Order 12988, Civil Justice Reform

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. In accordance with this rule: (1) All State and 
local laws and regulations that are in conflict with this rule will be 
preempted; (2) no retroactive effect will be given this rule; and (3) 
administrative proceedings in accordance with the regulations of the 
Department of Agriculture's National Appeals Division (7 CFR part 11) 
must be exhausted before bringing suit in court challenging action 
taken under this rule unless those regulations specifically allow 
bringing suit at an earlier time.

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Executive Order 13132, Federalism

    It has been determined, under Executive Order 13132, Federalism, 
that this proposed rule does not have sufficient federalism 
implications to warrant the preparation of a Federalism Assessment. The 
provisions contained in the proposed rule will not have a substantial 
direct effect on States or their political subdivisions or on the 
distribution of power and responsibilities among the various government 
levels.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-602) (RFA) generally 
requires an agency to prepare a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements under the 
Administrative Procedure Act or any other statute unless the agency 
certifies that the rule will not have an economically significant 
impact on a substantial number of small entities. Small entities 
include small businesses, small organizations, and small governmental 
jurisdictions.
    In compliance with the RFA, Rural Development has determined that 
this action will not have an economically significant impact on a 
substantial number of small entities. The burden for applying for a 
Biorefinery Assistance Guaranteed loan to any one borrower is estimated 
to be less than 0.1 percent of the estimated cost of the average 
reconstruction project funded under this program. Further, this 
regulation only impacts those who choose to participate in the program.

Executive Order 13211, Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use

    The regulatory impact analysis conducted for this proposed rule 
meets the requirements for Actions Concerning Regulations That 
Significantly Affect Energy Supply Distribution and Use, Executive 
Order No. 13211, which states that an agency undertaking regulatory 
actions related to energy supply, distribution, or use is to prepare a 
Statement of Energy Effects. This analysis does not find that this 
proposed rule will have any adverse impacts on energy supply, 
distribution or use.

Executive Order 12372, Intergovernmental Review of Federal Programs

    Rural Development guaranteed loans are subject to the Provisions of 
Executive Order 12372, which require intergovernmental consultation 
with State and local officials. Rural Development will conduct 
intergovernmental consultation in the manner delineated in RD 
Instruction 1940-J, ``Intergovernmental Review of Rural Development 
Programs and Activities,'' available in any Rural Development office, 
on the Internet at http://www.rurdev.usda.gov/regs, and in 7 CFR part 
3015, subpart V.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This executive order imposes requirements on Rural Development in 
the development of regulatory policies that have Tribal implications or 
preempt Tribal laws. Rural Development has determined that the proposed 
rule does not have a substantial direct effect on one or more Indian 
Tribe(s) or on either the relationship or the distribution of powers 
and responsibilities between the Federal Government and the Indian 
Tribes. Thus, the proposed rule is not subject to the requirements of 
Executive Order 13175.

Programs Affected

    The Catalog of Federal Domestic Assistance Program numbers assigned 
to affected program is: 10.865, Biorefinery Assistance Program.

Paperwork Reduction Act

    The collection of information requirements contained in the notice 
have received temporary emergency clearance by the Office of Management 
and Budget (OMB) under control Number 0570-0055. However, in accordance 
with the Paperwork Reduction Act of 1995, USDA Rural Development will 
seek OMB approval of the reporting and recordkeeping requirements 
contained in this Notice and hereby opens a 60-day public comment 
period.
    Title: Biorefinery Assistance Guaranteed Loans.
    Type of Request: New collection.
    Abstract: Rural Development is providing guaranteed loans to assist 
in the development and construction of commercial-scale biorefineries 
and the retrofitting of existing facilities using eligible technology 
for the development of advanced biofuels. Consistent with Congressional 
intent, preference will be given to projects where first-of-a-kind 
technology will be deployed at the commercial scale. To that end, the 
program will promote the development of the first commercial scale 
biorefineries that do not rely on corn kernel starch as the feedstock 
or standard biodiesel technology.
    The collection of information is vital to Rural Development to make 
wise decisions regarding the eligibility of projects and borrowers in 
order to ensure compliance with the regulations and to ensure that the 
funds obtained from the Government are used appropriately (i.e., being 
used for the purposes for which the guaranteed loans were awarded). 
Persons seeking loan guarantees under this program will have to submit 
applications that include specified information including, but not 
limited to, the lender's analysis and credit evaluation, financial 
statements on the borrower, a feasibility study, a business plan, a 
technical assessment, an economic analysis, and a description of the 
borrower's bioenergy experience. The information included in 
applications for loan guarantee will be used to determine applicant and 
project eligibility and to ensure that funds are used for projects that 
are likely to be financially sound.
    Once a project has been approved and the loan has been guaranteed, 
lenders must submit certain reports. Some of these reports are 
associated with the performance of the lender's loan portfolio and 
include both periodic reports on the status of that portfolio and, when 
applicable monthly default reports. Other reports are associated with 
individual projects and include quarterly construction reports and, 
once a project has been completed, annual reports through the life of 
the guaranteed loan. In addition, lenders are required to conduct 
annual inspections of each completed project.
    The following estimates are based on the average over the first 
three years the program is in place.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 4.6 hours per response.
    Respondents: Individuals, entities, Indian Tribes, units of State 
or local government, corporations, farm cooperatives, farmer 
cooperative organizations, associations of agricultural producers, 
National Laboratories, institutions of higher education, rural electric 
cooperatives, public power entities, and consortia of any of these 
entities.
    Estimated Number of Respondents: 23.
    Estimated Number of Responses per Respondent: 27.4.
    Estimated Number of Responses: 630.
    Estimated Total Annual Burden (hours) on Respondents: 2,920.
    Copies of this information collection may be obtained from Cheryl 
Thompson, Regulations and Paperwork Management Branch, Support Services

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Division, U.S. Department of Agriculture, Rural Development, STOP 0742, 
1400 Independence Ave., SW., Washington, DC 20250-0742 or by calling 
(202) 692-0043.

Comments

    Comments are invited on: (a) Whether the proposed collection of 
information is necessary for the proper performance of the functions of 
Rural Development, including whether the information will have 
practical utility; (b) the accuracy of the new Rural Development 
estimate of the burden of the proposed collection of information, 
including the validity of the methodology and assumptions used; (c) 
ways to enhance the quality, utility, and clarity of the information to 
be collected; and (d) ways to minimize the burden of the collection of 
information on those who are to respond, including through the use of 
appropriate automated, electronic, mechanical, or other technological 
collection techniques or other forms of information technology. 
Comments may be sent to Cheryl Thompson, Regulations and Paperwork 
Management Branch, U.S. Department of Agriculture, Rural Development, 
STOP 0742, 1400 Independence Ave., SW., Washington, DC 20250. All 
responses to this proposed rule will be summarized and included in the 
request for OMB approval. All comments will also become a matter of 
public record.

E-Government Act Compliance

    Rural Development is committed to complying with the E-Government 
Act, to promote the use of the Internet and other information 
technologies to provide increased opportunities for citizen access to 
Government information and services, and for other purposes.

I. Background

    Rural Development administers a multitude of Federal programs for 
the benefit of rural America, ranging from housing and community 
facilities to infrastructure and business development. Its mission is 
to increase economic opportunity and improve the quality of life in 
rural communities by providing the leadership, infrastructure, venture 
capital, and technical support that enables rural communities to 
prosper.
    To achieve its mission, Rural Development provides financial 
support (including direct loans, grants, and loan guarantees) and 
technical assistance to help enhance the quality of life and provide 
the foundation for economic development in rural areas. Section 9003 of 
the Food, Conservation, and Energy Act of 2008 (2008 Farm Bill) 
provides financial assistance in the form of grants and guaranteed 
loans to assist in the development of new and emerging technologies for 
the development of advanced biofuels.
    The following types of financial assistance under section 9003 are 
authorized:
     Grants for the development and construction of 
demonstration-scale biorefineries to demonstrate the commercial 
availability of one or more processes for converting renewable biomass 
to advanced biofuels.
     Guaranteed loans for the development, construction or the 
retrofitting of commercial biorefineries using eligible technology, 
where eligible technology is defined as:
    (a) Any technology that is being adopted in a viable commercial-
scale operation of a biorefinery that produces an advanced biofuel, and
    (b) Any technology not described in paragraph (a) above that has 
been demonstrated to have technical and economic potential for 
commercial application in a biorefinery that produces an advanced 
biofuel.
    Overview of Section 9003. Section 9003 of the Farm Security and 
Rural Investment Act of 2002 as added by the Food Conservation and 
Energy Act of 2008, authorizes the Secretary of Agriculture to 
establish the Biorefineries Assistance Loan Guarantee Program to 
provide loan guarantees for the construction of biorefineries to 
``assist in the development of new and emerging technologies for the 
development of advanced biofuels''.
    Under the proposed rule, the Agency will establish a rolling 
process for the consideration of loan guarantee requests for the 
development and construction of commercial-scale biorefineries or for 
the retrofitting of existing facilities using eligible technology for 
the development of advanced biofuels. Consistent with the authorizing 
legislation, the proposed rule defines the term ``advanced biofuel'' as 
a ``fuel derived from renewable biomass, other than corn kernel 
starch.'' The Agency is proposing that the maximum percentage of the 
loan guarantee be 80 percent of loan and the maximum amount of the loan 
guarantee be $250 million.
    Consistent with the authorizing legislation, the goal of this 
program is to encourage the development of commercial scale 
biorefineries that produce advanced biofuels. To help meet this goal, 
the program proposes to be open to all feasible technologies. At this 
stage in the development of biofuels industry, it is impossible to know 
what technologies will become the most effective. Further, the Agency 
believes that unlike other Rural Development renewable energy programs, 
this program should be conducted on a rolling application acceptance 
basis. The Agency's experiences with its Business and Industry Loan 
Guarantee Program has taught the Agency that the development of 
financing arrangements between lenders and borrowers frequently do not 
fit within pre-prescribed application windows. Once these arrangements 
are agreed upon, the Agency needs to be able to make a decision within 
a relatively short period of time or the deal will likely collapse. 
With respect to all of these points, the Agency welcomes feedback from 
the public during the comment period.
    The Agency views this program in conjunction with its other 
renewable energy programs in the context of an overall Federal 
renewable energy strategy. The goal of this strategy is to foster the 
development of a strong, expanding, and economically sustainable group 
of renewable energy industries in the United States to supply an 
increasing share of the country's energy needs. The success of these 
industries will depend on their ability to produce energy sources that 
meet the demands of the country's energy markets. These markets are 
driven by a number of factors including the price of oil and other 
fossil fuels, developments in technologies, the acceptance of the 
public, the capacity of distribution systems, and the impact of 
government regulation such as the renewable fuels standard.
    The Biorefinery Assistance Loan Guarantee Program is one part of 
Rural Development's contribution to the Department of Agriculture's 
renewable energy efforts that support the overall Federal renewable 
energy strategy. This program provides critical assistance to the 
development of biorefineries in the United States by facilitating the 
financing of a number of biorefineries through the leveraging of 
Federal government biorefinery assistance loan guarantees and private 
capital sources.
    Over time, the Agency believes that these private capital sources 
will look at the Federal government investments in biorefineries under 
this program more generally as a sign that these facilities are worth 
financing, even without the Federal government, which will further 
support the development of the renewable energy industries of in the 
U.S. The Agency believes that this program will provide examples of how 
private capital can successfully invest in biorefineries that adopt new 
and more effective technologies that will enable energy from renewable 
sources to

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supply an increasing share of the energy needs of the country.
    Notice of Funds Availability. Rural Development published a Notice 
of Funds Availability (NOFA) for the section 9003 guaranteed loan 
program on November 20, 2008 [73 FR 70544] (referred to in this notice 
as the Section 9003 NOFA) and an Advanced Notice of Proposed Rulemaking 
(ANPRM) on the same day [73 FR 70542]. The ANPRM requested comments in 
several areas including definitions and terms (established a market, 
by-products, co-products, area, local market); oversight and monitoring 
(reporting requirements once the project is established and stabilized; 
evaluation of project performance); eligible borrowers (National 
laboratories); loan applications (technical reports, private sector 
credit rating); evaluation of guaranteed loan applications (scoring 
criteria); origination responsibilities (credit evaluation and equity); 
and basic guarantee and loan provisions (project costs and issuance of 
the loan note guarantee). The Agency received nine comment letters in 
response to the ANPRM, and has considered the comments in developing 
this proposed rule.
    The following section describes the proposed Biorefinery Assistance 
program.

II. Discussion of Proposed Rule for Biorefinery Assistance Guaranteed 
Loans

    In this section of the Notice, the proposed rule for Biorefinery 
Assistance Guaranteed loans is described. The Agency is adding a new 
subpart to 7 CFR part 4279, Guaranteed Loanmaking, and a new subpart to 
7 CFR part 4287, Servicing, which taken together represent the 
regulatory provisions for the Biorefinery Assistance program. This 
approach is consistent with the Agency's intent to use the structure of 
its B&I program when the Agency withdrew 7 CFR part 5001 on September 
21, 2009 (74 FR 48005).

A. Background

    In developing the Biorefinery Assistance program, the Agency 
considered two primary factors:
     Statutory requirements. The authorizing statute requires 
the Agency to include certain provisions when implementing the 
Biorefinery Assistance program.
     The nature of the program. The Biorefinery Assistance 
program is a new program for the Agency. With the exception of the 
Rural Energy for America Program, the type of technologies associated 
with biorefineries will be very different than those associated with 
other Business Programs currently being run by Rural Development. This 
led the Agency to consider whether new and more detailed requirements 
than found in the B&I regulation were needed for biorefinery guaranteed 
loans. Furthermore, the size of the loans that will be involved (up to 
$250 million) is substantially larger than under other Business 
programs, including the Rural Energy for America Program. This also 
results in the Agency's consideration for additional requirements for 
Biorefinery Assistance Guaranteed loans.
    A third factor considered by the Agency is comments submitted in 
response to the ANPRM. In the ANPRM, the Agency requested comments 
specific to several areas for consideration in developing the 
guaranteed loan program for biorefinery assistance. The Agency received 
nine public comment letters. The Agency reviewed each comment letter 
and, where the Agency determined it appropriate, incorporated 
recommendations into the proposed rule.
    As noted above, the Agency is proposing to add new subparts to 7 
CFR part 4279, Guaranteed Loanmaking, and 7 CFR part 4287, Servicing, 
as discussed in Section II.B of this preamble.

B. The Biorefinery Assistance Program

    The following paragraphs discuss the proposed Biorefinery 
Assistance program. Conceptually, the Agency is proposing to add a new 
subpart C to 7 CFR part 4279 and a new subpart D to 7 CFR part 4287, 
with extensive incorporation of many of the B&I guaranteed loan 
provisions.
    The new 7 CFR part 4279, subpart C, identifies the purpose and 
scope of the Biorefinery Assistance program, identifies the 
relationship of this program to the general B&I provisions found in 7 
CFR part 4279, subpart A, and identifies the loan processing 
requirements for Biorefinery Assistance guaranteed loans. While many of 
the loan processing requirements are the same as for B&I guaranteed 
loans, there are significant loan processing provisions being proposed 
that are specific to Biorefinery Assistance Guaranteed loans.
    The new 7 CFR part 4287, subpart D, identifies the servicing 
requirements for Biorefinery Assistance Guaranteed loans. Most of the 
servicing requirements being proposed are the same as found in the 
servicing regulation (7 CFR part 4287) for the B&I guaranteed loans.
Purpose and Scope (Sec.  4279.201)
    This section describes the purpose and scope of the Biorefinery 
Assistance program.
Compliance With Sec. Sec.  4279.1 Through 4279.99 (Sec.  4279.202)
    In general, the B&I provisions found in Sec. Sec.  4279.1 through 
4279.99 will be applicable to Biorefinery Assistance Guaranteed loans. 
There are several areas where there are exceptions or additions. These 
areas are:
    1. Definitions. This paragraph presents the definitions applicable 
to the Biorefinery Assistance program. Many of the applicable 
definitions are incorporated by reference from the B&I regulations 
(Sec.  4279.2). Other definitions are specific to the Biorefinery 
Assistance program. The following paragraphs present many of the 
definitions required for the implementation of the Biorefinery 
Assistance program. Two of these definitions are statutorily driven, 
while the others are being proposed by the Agency in order to implement 
the program more clearly.
    Statutorily-driven terms. The 2008 Farm Bill defines ``advanced 
biofuel'' and ``eligible technology.'' Because these two terms are 
statutorily defined, the Agency must use them as defined in the 2008 
Farm Bill.
    Other terms. The Agency identified a number of terms that are 
needed in order to implement the Biorefinery Assistance program. These 
terms are:
     Biofuel;
     Biorefinery;
     By-product;
     Farm cooperative;
     Farmer Cooperative Organization;
     Immediate family;
     Indian Tribe;
     Institution of higher education;
     Local owner;
     Offtake agreement;
     Regulated or supervised lender;
     Renewable biomass; and
     Total project costs.
    The 2008 Farm Bill provides a definition for biorefinery, which is 
included in the proposed rule. With the exception of renewable energy 
and renewable energy system, these terms are being defined because they 
are associated with implementing the Biorefinery Assistance program.
    With the exception of farm cooperative, farm cooperative 
organization, by-product, and local owner these terms and their 
definitions are the same, or essentially the same, as found in the 
Section 9003 NOFA. With regard to farm cooperative, the definition is 
being revised to reflect the

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structure of the farm cooperative, rather than its operational aspects. 
Therefore, the Agency revised the definition to track the one used in 
the Value Added Producer Grant program, which requires the applicant to 
be incorporated as a cooperative. As a result, the program will require 
the cooperative to comply with State law. The NOFA did not state that 
the cooperative had to be incorporated as a cooperative.
    With regard to farm cooperative organization, the definition is 
being revised to make it clearer as to what constitutes a farm 
cooperative organization.
    With regard to by-product, a definition for by-product is being 
added in response to comments received on the ANPRM. The Section 9003 
NOFA did not have a definition for by-product. The term biorefinery is 
defined in the statute, and includes language concerning products other 
than the biofuel. By-products are an important revenue source for many 
biorefineries. The definition requires that they be typical to the 
operation, and measurable. The Agency wanted to ensure for the 
technical and financial analysis, that a standard for a byproduct is 
established and that the applicant can document the same.
    With regard to local owner, the Agency is proposing the method for 
determining local ownership under the scoring criteria by looking at 
the percent of local owners whose primary residence is within 20 miles 
of the area supplying feedstock to the biorefinery (see 
4279.265(d)(9)). Thus, it is necessary to define ``local owner.''
    The Agency also identified a number of terms associated with the 
definition of ``eligible technology'', with project eligibility, or 
with lender eligibility:
     Retrofitting;
     Semi-work scale;
     Technical and economic potential;
     Tier 1 capital;
     Tier 2 capital;
     Tier 1 leverage capital ratio;
     Tier 1 risk-based capital ratio;
     Total qualifying capital;
     Total risk-based capital ratio; and
     Viable commercial-scale operation.
    The proposed definition for retrofitting is the same as found in 
the Section 9003 NOFA.
    The definition of technical and economic potential is essentially 
the same as found in the Section 9003 NOFA, but has been modified, in 
paragraph (ii), to refer to the demonstration of the ``potential 
success of the project'' rather than to the demonstration of the 
``success of the project.'' In addition, to clarify paragraph (iii) of 
this definition, the Agency is adding a definition for ``semi-work 
scale.''
    The Section 9003 NOFA provided a definition for ``viable 
commercial-scale.'' The Agency believes that it is clearer to define 
``viable commercial-scale operation'' and, thus, has revised the term 
being defined. The definition is the same as found in the Section 9003 
NOFA for ``viable commercial-scale,'' but with minor editing.
    Two of the other terms are agricultural producer and association of 
agricultural producers. The definition of association of agricultural 
producer is very similar to the definition of the term as found in the 
Section 9003 NOFA. The Agency is adding the definition of 
``agricultural producer'' to further clarify the term ``association of 
agricultural producers.''
    Lastly, the Agency also identified a number of terms used in making 
guaranteed loans that have not been previously defined for the B&I 
Guaranteed Loan program and that will be applicable to the Biorefinery 
Assistance program. These terms are:
     Business plan;
     Default;
     Eligible project costs;
     Existing business;
     Feasibility study;
     Future recovery;
     Loan classification;
     Market value;
     Material adverse change;
     Negligent loan origination;
     Project;
     Protective advance;
     Startup business;
     Surety;
     Tangible net worth; and
     Working capital.
    The Agency believes that providing definitions for these terms will 
be beneficial to the Section 9003 guaranteed loan program. 
Approximately one-half of these terms are based on the definitions 
found in the Section 9003 NOFA. Most of the other terms are based on 
the definitions found in the withdrawn Rural Development Guaranteed 
Loans rule.
    2. Exception authority (Sec.  4279.202(b)). This section identifies 
those conditions under which the Administrator may make, on a case-by-
case basis, exceptions to any requirement or provision of this subpart. 
The proposed provisions are the same as found in 7 CFR part 4280, 
subpart B, for the renewable energy systems and energy efficiency 
improvements program. These provisions are very similar to those 
currently found in Sec.  4279.15.
    3. Lender eligibility requirements (Sec.  4279.202(c)). This 
paragraph presents the requirements for lenders to participate in the 
Biorefinery Assistance program. Consistent with the Section 9003 NOFA, 
only lenders that are regulated or supervised will be eligible to 
originate and service Biorefinery Assistance Guaranteed loans. The 
Agency is not allowing lending entities that are not regulated or 
supervised to participate in order to manage Agency risk associated 
with this program.
    Although the lenders eligible for participation in the Biorefinery 
Assistance program are regulated or supervised, the Agency is proposing 
additional requirements associated with minimum acceptable level of 
capital requirements that are not being required for lenders 
participating in other Rural Development guaranteed loan programs. The 
additional level of capital requirements, which are the same as found 
in the Section 9003 NOFA, are being proposed because of the size of 
projects under the Biorefinery Assistance program. The Agency believes 
these additional requirements are necessary to limit Agency risk.
    Lastly, under this section, the Agency will approve loan guarantees 
under this subpart only for lenders with adequate experience (as 
determined by the Agency) with similar projects and the expertise to 
make, secure, service, and collect loans approved under this subpart. 
The Agency believes this provision is necessary to further limit Agency 
risk.
    4. Independent credit risk analysis (Sec.  4279.202(d)). Under this 
paragraph, the Agency will require an independent credit risk analysis 
from a nationally-recognized rating agency for loans of $100 million or 
more. The threshold level for the independent credit risk analysis is 
less than found in the Section 9003 NOFA.
    5. Environmental responsibilities (Sec.  4279.202(e)). The Agency 
is proposing that lenders comply with the environmental 
responsibilities in proposed Sec.  4279.202(e) rather than with those 
requirements specified in Sec.  4279.30(c) of the B&I regulation. The 
proposed provisions are very similar to those found in the Section 9003 
NOFA.
    6. Additional lender functions and responsibilities Sec.  
4279.202(f)). The Agency is proposing to add three new paragraphs to 
Sec.  4279.30, Lenders' functions and responsibilities. These three 
paragraphs, which were part of the Section 9003 NOFA, address:
     Agency action or inaction. Any action or inaction on the 
part of the Agency does not relieve the lender of its responsibilities 
to originate and service the loan guaranteed under this subpart.
     Lender files. The lender must compile and maintain in its 
files a

[[Page 20049]]

complete application for each guaranteed loan for at least 3 years 
after the final loss has been paid.
     Conflicts of interest. The lender must report to the 
Agency all conflicts of interest and appearances of conflicts of 
interest.
    7. Certified lender program (Sec.  4279.202(g)). The Agency is not 
including either a preferred or certified lender program because the 
Agency does not believe a preferred lender program, or a certified 
lender program as provided in Sec.  4279.43, is appropriate for the 
biorefinery assistance program.
    8. Oversight and monitoring (Sec.  4279.202(h)). This paragraph 
addresses the recording keeping, oversight, and monitoring requirements 
with which lenders would have to comply. These provisions are the same 
as found in the Section 9003 NOFA.
    9. Conditions of guarantee (Sec.  4279.202(i)). The Agency is 
proposing that the guarantee for a biorefinery assistance loan will 
have to be secured by a first lien on all collateral necessary to run 
the project in the event of the borrower's default. The Agency is 
adding this requirement because of the size of the guaranteed loans 
under this section. The Section 9003 NOFA also required a first lien on 
all collateral.
    The Agency is also proposing to include two other provisions, which 
are found in the Section 9003 NOFA: the rights of the holder of the 
guaranteed portion and the requirement to show the lender as an 
additional insured on insurance policies.
    Lastly, the Agency is proposing that if a lender does not 
satisfactorily comply with the changes and cost overrun provisions 
found in Sec.  4279.256(c) and such failure leads to losses, then such 
losses may not be recoverable under the guarantee. This provision was 
not found in the Section 9003 NOFA, but is being added to protect the 
Agency's interests.
    10. Sale or assignment of guaranteed loan Sec.  4279.202(j)). The 
Agency is proposing to supplement Sec.  4279.75 by requiring the 
guaranteed portion of the loan to be fully transferable to any 
accredited investor and allowing the Agency to not guarantee a loan 
funded with the net proceeds of a bond described in section 142(a) of 
the Internal Revenue Code of 1986. These two provisions were part of 
the Section 9003 NOFA.
    11. Minimum retention (Sec.  4279.202(k)). The Agency is proposing 
the same provisions for minimum retention as found in the Section 9003 
NOFA. The Agency believes that these minimum retention provisions are 
better suited to the size of the loans that will be guaranteed under 
the Section 9003 program than those found in the corresponding B&I 
provisions for minimum retention at Sec.  4279.77.
    12. Replacement of document 4279.202(l)). The Agency is proposing 
to supplement Sec.  4279.84(b)(1)(v) by identifying additional 
circumstances (defacement or mutilation) under which documents will be 
replaced.
Loan Processing (Sec.  4279.225)
    This section states that Biorefinery Assistance Guaranteed loans 
will be processed in accordance with the B&I provisions found in 
Sec. Sec.  4279.107 through 4279.199, subject to a number of important 
exceptions. These exceptions are identified in the proposed rule in 
Sec. Sec.  4279.226 through 4279.299 and are discussed below.
Fees (Sec.  4279.226)
    This section addresses guarantee fees and renewal fees. The B&I 
provisions for the guarantee and renewal fees, which are found at Sec.  
4279.107, apply to this program. The following paragraphs summarize 
differences from these B&I provisions.
    Guarantee Fee. The guarantee fee rates, which are based on the size 
of the loan relative to total project costs, are the same as found in 
the Section 9003 NOFA.
    Renewal Fee. As found in the Section 9003 NOFA, the annual renewal 
fee must be paid to the Agency for as long as the guaranteed loan is 
outstanding and is payable during the construction period. The renewal 
fee rates are also the same as found in the Section 9003 NOFA. The 
Agency notes that the Section 9003 NOFA allowed the guarantee fee to be 
passed on to the borrower, but did not address whether the renewal fee 
could be passed on to the borrower. Under the proposed rule, the 
renewal fee can be passed on to the borrower.
Borrower Eligibility (Sec.  4279.227)
    This section identifies the eligible borrowers for a guaranteed 
loan under the Biorefinery Assistance program; the borrower eligibility 
requirements in Sec.  4279.108 will not apply to this subpart. Instead, 
eligible borrowers, which are defined in the 2008 Farm Bill, must be 
one of the following:
     An individual;
     An entity;
     An Indian Tribe;
     A unit of State or local government;
     A corporation;
     A farm cooperative;
     A farmer cooperative organization;
     An association of agricultural producers;
     A National Laboratory;
     An institution of higher education;
     A rural electric cooperative;
     A public power entity; or
     A consortium of any of the above entities.
    Because these entities, including units of State and local 
governments, National laboratories, and institutions of higher 
education, are statutorily defined, the Agency cannot make changes to 
this list. The Agency has defined several of the entities to clarify 
who will be eligible. Lastly, the Agency notes that ``entity'' was not 
included in the Section 9003 NOFA; this was an oversight.
    In addition to being an eligible type of borrower, borrowers must 
also meet citizenship requirements and must possess the legal authority 
and responsibility necessary to construct, operate, and maintain the 
proposed facility and services and to obtain, give security for, and 
repay the proposed loan. The proposed citizenship requirements are very 
similar to those found in the Section 9003 NOFA, but with the following 
three additions:
     When an entity owns an interest in the borrower, its 
citizenship will be determined by the citizenship of the individuals 
who own an interest in the entity or any sub-entity based on their 
ownership interest;
     If an entity is composed solely of members of an immediate 
family, that entity is eligible to participate provided that at least 
one of the immediate family members meets the citizenship requirement 
for an individual; and
     Corporate borrowers traded on major United States stock 
exchanges will be presumed to have more than 51 percent of their owners 
as United States citizens.
    This section also identifies conditions under which the borrower 
will be considered ineligible for a guarantee. Further, if an applicant 
does not meet the citizenship requirement, the applicant is not 
eligible for this program. While this citizenship requirement is not 
required by statute, it is consistent with the Agency's other programs. 
As found in Section III of this preamble, the Agency is seeking comment 
on this requirement.
Project Eligibility (Sec.  4279.228)
    This section presents the requirements for a project to be eligible 
for a Biorefinery Assistance Guaranteed loan; the project eligibility 
requirements in Sec.  4279.113 will not apply to this subpart. Instead, 
the Agency is proposing five specific project eligibility requirements, 
as discussed below.
    The Agency is proposing that the project must be located in a rural 
area

[[Page 20050]]

in order to be eligible for this program. If the project is not located 
in a rural area, it is not eligible for this program. While not 
statutorily required, the Agency is proposing this rural area 
requirement for consistency with its other programs and its mission to 
improve the economic conditions of rural America. Lastly, as found in 
Section III of this preamble, the Agency is seeking comment on this 
requirement.
    The second requirement (that the project must be for either the 
development and construction of commercial-scale biorefineries using 
eligible technology or the retrofitting of existing facilities) is 
statutorily-driven. Both of the first and second requirements are the 
same as found in the Section 9003 NOFA.
    The third requirement, use of an eligible feedstock, is being 
proposed in response to comments on the ANPRM. These comments requested 
that the Agency clarify the various types of feedstocks that 
biorefineries could use to make advanced biofuels and still be eligible 
for funding under this program. The commenters referred to both the 
statutory language and the Manager's Report on the statute, pointing 
out that certain types of feedstocks were considered, but not clearly 
identified, as potential feedstocks for biorefineries. The Agency 
believes that the statute clearly defines eligible feedstock and no 
further clarification is needed in the proposed rule.
    The Agency received a comment on the ANPRM that requested the 
Agency to consider excluding paper that is commonly recycled from the 
definition of ``waste,'' thus excluding it as an eligible feedstock. 
The Agency has adopted this position in this rule and is seeking 
specific comments on this request and on any other feedstocks that 
should not be considered eligible under this program.
    The fourth requirement, more than 70 percent of revenues from the 
sale of advanced biofuel, attempts to address the Agency's concern that 
loans guaranteed under this program go to projects at biorefineries 
whose primary purpose is the production of advanced biofuel. This 
provision was not included in the Section 9003 NOFA.
    The fifth requirement is that the project must have cash equity 
injection of not less than 20 percent of eligible project costs not 
attributed to other Federal grant or loan programs such as the 
Department of Energy. By limiting the maximum loan guaranteed to 80 
percent of eligible project costs, the statute requires that at least 
20 percent of the project's costs come from sources other than loan 
proceeds. The Agency requested comment in the ANPRM as to:
     What should the equity requirements be?
     Should there be minimum equity requirements that may vary 
depending on the size of the project?
     Will it differ between construction and development versus 
retrofitting?
    After considering the responses to these questions, the Agency 
believes that equity should be cash equity, because cash equity 
represents the best commitment of the borrower to the project and it 
can help reduce project risk by making cash available during 
construction and project startup. The Agency is proposing the same cash 
equity requirement for all biorefinery assistance projects.
    Lastly, this section identifies what areas qualify as rural. The 
definition being proposed is the same as in the Section 9003 NOFA with 
the addition that projects that are located in areas determined to be 
``rural in character'' will be eligible. When making a ``rural in 
character'' determination under the Section 9003 program, the Agency 
will do so in a manner that is consistent with making similar 
determinations under its Business and Industry Guaranteed Loan program.
Guaranteed Loan Funding (Sec.  4279.229)
    Instead of complying with the B&I provisions for guaranteed loan 
funding found at Sec.  4279.119, the Agency is proposing a separate set 
of provisions for Biorefinery Assistance Guaranteed loans. These 
provisions, which are the same as those found in the Section 9003 NOFA, 
address:
     Distribution of budget authority each fiscal year;
     Maximum amount of the loan;
     Maximum principal amount to one borrower;
     Maximum guarantee; and
     Eligible project costs.
    As required by the 2008 Farm Bill, of the funds made available for 
loan guarantees for a fiscal year, 50 percent of the funds must be 
reserved for obligation during the second half of the fiscal year. To 
implement this provision, the Agency will allocate up to, but no more, 
than 50 percent of its budgetary authority to fund applications 
received by the end of the first application window. If any of this 
budgetary authority is not obligated by the end of the first 
application window, the Agency will carry it over into the second 
application window. Thus, the Agency will have at a minimum 50 percent 
of its budgetary authority available for the second application window.
    As required by the 2008 Farm Bill, the amount of a guaranteed loan 
for a project under this section cannot exceed 80 percent of total 
eligible project costs, which are identified later in this preamble. In 
addition, total Federal participation for a biorefinery project will 
not exceed 80 percent of total eligible project costs. The project is 
the biorefinery or portion of the biorefinery that is producing 
eligible advanced biofuels and any eligible biobased by-products 
receiving funds under this program.
    The Agency is proposing to limit the maximum principal amount of a 
loan guaranteed under this section to one borrower to $250 million; the 
Agency is not proposing a minimum amount. This is the same as found in 
the Section 9003 NOFA. The Agency notes that the 2008 Farm Bill 
provides for a maximum principal amount of a loan guaranteed under the 
Biorefinery Assistance program to $250 million on a loan basis. The 
Agency is proposing to apply the $250 million limit on a borrower basis 
in order to make funds available to more entities.
    In addition, and as required by the 2008 Farm Bill, the amount of a 
loan guaranteed under this section will be reduced by the amount of 
other direct Federal funding (i.e., direct loans and grants) that the 
eligible borrower receives for the same project. For example, an 
eligible borrower is applying for a loan guarantee on a $1 million 
project. The borrower provides the minimum matching requirement of 20 
percent, or $200,000. This leaves $800,000 in other funding needed to 
implement the project. If the borrower receives no other direct Federal 
funding for this project and requests a guarantee for the $800,000, the 
Agency will consider a guarantee on the $800,000. However, if this 
borrower receives $100,000 in other direct Federal funding for this 
project, the Agency will only consider a guarantee on $700,000. These 
provisions are the same as those found in the Section 9003 NOFA.
    This section also establishes the maximum percent guarantees for 
loans under this subpart, which are the same as found in the Section 
9003 NOFA. The last paragraph in this section contains the list of 
items the Agency is proposing as eligible project costs, provided the 
items are an integral and necessary part of the total project. The list 
of eligible project costs are the same as found in the Section 9003 
NOFA, except that professional service fees, feasibility studies, and 
business plans have been removed from this list. The Agency is deleting 
these three items because these are expenses that the applicant will

[[Page 20051]]

otherwise incur in evaluating project capability and suitability prior 
to seeking financial assistance.
Subordination of Lien Position (Sec.  4279.230)
    In addition to complying with the provisions found in Sec.  
4279.123, a subordination must not extend the term of the guaranteed 
loan made under this subpart.
Interest Rates (Sec.  4279.231)
    This section identifies the requirements for interest rates for 
loans that are guaranteed under this program, which are the same as 
found in the Section 9003 NOFA.
Terms of Loan (Sec.  4279.232)
    As found in the Section 9003 NOFA, the repayment term for a loan 
guaranteed under this subpart will be for a maximum period of 20 years 
or 85 percent of the useful life of the project, whichever is less, as 
determined by the lender and confirmed by the Agency. In addition, the 
length of the loan term will be required to be the same for both the 
guaranteed and unguaranteed portion of the loan. Additional provisions, 
which are also found in the Section 9003 NOFA, address when guarantees 
can be provided and that all loans guaranteed must be financially sound 
and feasible with reasonable assurance of repayment.
    Lastly, repayment of the loan will be subject to the B&I provisions 
found at Sec.  4279.125(a) and Sec.  4279.126(b), (c), and (d).
Credit Evaluation (Sec.  4279.233)
    Instead of complying with the B&I provisions at Sec.  4279.131 
concerning credit quality, the Agency is proposing a separate set of 
provisions under this subpart.
    As proposed, lenders must conduct a credit evaluation for each 
application submitted. The proposed rule identifies what the Agency 
considers to be an acceptable credit evaluation. Specifically, the 
lender must use credit documentation procedures and an underwriting 
process that are consistent with generally accepted commercial lending 
practices, and the lender must include an analysis of all credit 
factors associated with each guarantee application to ensure loan 
repayment.
    In making this analysis, the proposed rule requires the lender to 
consider the following:
     Credit worthiness. This refers to those qualities that 
generally impel the prospective borrower to meet its obligations as 
demonstrated by its credit history.
     Cash flow. This refers to a prospective borrower's ability 
to produce sufficient cash to repay the loan as agreed.
     Capital. This refers to the financial resources that the 
prospective borrower currently has and those it is likely to have when 
payment is due. The prospective borrower must be adequately 
capitalized.
     Collateral. This refers to the assets, including the 
processing technology owned by the borrower, pledged by the prospective 
borrower in support of the loan.
     Conditions. This refers to the general business 
environment and status of the prospective borrower's industry.
    When determining the credit quality of the borrower, the lender 
must include the following:
     Borrowers must demonstrate evidence of cash equity 
injection in the project of not less than 20 percent of eligible 
project costs. The fair market value of equity in real property that is 
to be pledged as collateral for the loan may be substituted in whole or 
in part to meet the cash equity requirement. However, the appraisal 
completed to establish the fair market value of the real property must 
not be more than 1 year old unless a more recent appraisal is requested 
by the Agency in order to reflect market conditions. The appraisal used 
to establish fair market value of the real property must conform to the 
requirements of Sec.  4279.244. Otherwise, cash equity injection must 
be in the form of cash.
     The credit analysis must also include spreadsheets of the 
balance sheets and income statements of the borrower for the 3 previous 
years (for existing businesses), pro forma balance sheets at startup, 
and projected yearend balance sheets and income statements for a period 
of not less than 3 years of stabilized operation, with appropriate 
ratios and comparisons with industrial standards (such as Dun & 
Bradstreet or Robert Morris Associates) to the extent available.
     All data must be shown in total dollars and also in common 
size form, obtained by expressing all balance sheet items as a 
percentage of assets and all income and expense items as a percentage 
of sales.
    The Agency is including these additional details because of the 
size and complexity of the anticipated biorefinery assistance projects.
Financial Statements (Sec.  4279.237)
    Instead of complying with the B&I provisions for financial 
statements found at Sec.  4279.137, the Agency is proposing that 
biorefinery assistance projects comply with the financial statement 
provisions found at Sec.  4279.261(c), which are presented later in 
this preamble.
Appraisals (Sec.  4279.244)
    In addition to complying with the B&I provisions for appraisals at 
Sec.  4279.144, the appraisals for proposed biorefineries must be self-
contained appraisals. Further, lenders will be required to complete, 
for all applications, a Phase I Environmental Site Assessment (ESA) in 
accordance with ASTM International standards, which should be provided 
to the appraiser for completion of the self-contained appraisal.
    To conduct these appraisals, lenders are required to use 
specialized appraisers, unless a specialized appraiser does not exist, 
in which case the Agency may waive this requirement. This exception, 
that a specialized appraiser will not be required if such an appraiser 
does not exist for the technology required, is being proposed in 
recognition that one of the purposes of this program is to help push 
the technological envelop regarding the production of advanced biofuels 
and, as a result, specialized appraisers may not exist for all 
technologies under this program. Including this exception allows the 
Agency to avoid determining a project ineligible simply because the 
lender cannot find a specialized appraiser for a new technology.
Feasibility Studies (Sec.  4279.250)
    Because the Agency is proposing feasibility studies specific to 
biorefinery assistance projects, which are found at Sec.  4279.261(f), 
the B&I provisions for feasibility studies found at Sec.  4279.150 do 
not apply to this subpart.
Loan Priorities (Sec.  4279.255)
    Instead of complying with the B&I provisions for loan priorities 
found at Sec.  4279.155, the Agency is proposing scoring criteria 
specific to biorefinery assistance projects, which are found at Sec.  
4279.265(c) and which are presented later in this preamble.
Construction Planning and Performing (Sec.  4279.256)
    As proposed, the B&I provisions for construction planning and 
performing found at Sec.  4279.156(a) and (b) will apply to Biorefinery 
Assistance Guaranteed loans. In addition, the Agency is proposing 
several additional requirements specific to Biorefinery Assistance 
Guaranteed loans, as discussed below.
    Architectural and engineering practices. Similar to the Section 
9003 NOFA, lenders would also be required

[[Page 20052]]

to ensure that all project facilities are designed utilizing accepted 
architectural and engineering practices that conform to the 
requirements of the proposed subpart.
    Onsite inspectors. As proposed, lenders will be required to provide 
an onsite project inspector. Given the size and complexity of the 
anticipated biorefinery assistance projects, the Agency believes the 
presence of such inspectors is necessary to protect the interests of 
the lender and the Government.
    Changes and cost overruns. As proposed, borrowers will be 
responsible for any changes or cost overruns. If any such change or 
cost overrun occurs, then any change order must be approved by the 
Agency, and neither the lender nor borrower will be allowed to divert 
funds from purposes identified in the guaranteed loan application 
approved by the Agency to pay for any such change or cost overrun. In 
no event will the current loan be modified or a subsequent guaranteed 
loan be approved to cover any such changes or costs. In the event of 
any of the aforementioned increases in costs or expenses, the borrower 
will be required to provide for such increases in a manner that does 
not diminish the borrower's operating capital. Failure to comply with 
the terms of this paragraph will be considered a material adverse 
change in the borrower's financial condition, and the lender will have 
to address this matter, in writing, to the Agency's satisfaction. If a 
lender does not satisfactorily address the matter and such failure 
leads to losses, then such losses may not be recoverable under the 
guarantee.
    New draws. As proposed, the following three certifications will be 
required for each new draw:
     Certification by the project engineer to the lender that 
the work referred to in the draw has been successfully completed;
     Certification from the lender that all debts have been 
paid and all mechanics' liens have been waived; and
     Certification from the lender that the borrower is 
complying with the Davis-Bacon Act.
    The Agency is proposing these ``change or cost overruns'' and new 
draw provisions to protect its interests. These requirements are the 
same as found in the Section 9003 NOFA, with one exception--the Section 
9003 NOFA did not include the certification from the lender that the 
borrower is complying with the Davis-Bacon Act. The Agency believes 
such certification is appropriate to help ensure compliance with the 
statutory requirement for inclusion of the Davis-Bacon Act requirements 
in this program.
    Surety. The Agency is proposing that surety be required in cases 
when the guarantee will be issued prior to completion of construction 
unless the contractor will receive a lump sum payment at the end of 
work. In addition, surety is to be made a part of the contract, if the 
borrower requests it or if the contractor requests partial payments for 
construction work. Finally a latent defects bond may be required to 
cover the work in instances where no surety is provided and the project 
involves precommercial technology, first of its type in the U.S., or 
new designs without sufficient operating hours to prove their merit.
    Reporting during construction. As proposed, lenders will be 
required to submit quarterly construction reports during the 
construction of commercial-scale biorefineries or the retrofitting of 
existing facilities using eligible technology for the development of 
advanced biofuels. These reports must contain, at a minimum, planned 
and completed construction milestones, loan advances, and personnel 
hiring, training, and retention. The Agency believes that such reports 
are necessary to provide better oversight on these large projects.
Borrower Responsibilities (Sec.  4279.259)
    Under the proposed rule, the Agency has consolidated and simplified 
the responsibilities of borrowers under the Biorefinery Assistance 
program. These responsibilities, which are consistent with those 
associated with the B&I Guaranteed Loan program, address the following 
areas:
     Federal, State, and local regulations;
     Permits, agreements, and licenses;
     Insurance;
     Access to borrower's records; and
     Access to the project.
Guarantee Applications (Sec. Sec.  4279.260 and 4279.261)
    Instead of complying with the B&I provisions for applications found 
at Sec.  4279.161, the Agency is proposing a self-contained set of 
requirements for guaranteed loan applications for biorefinery 
assistance projects. These requirements are found in two sections of 
the proposed rule, as described below.
1. Guarantee Applications--General (Sec.  4279.260)
    This section of the proposed rule contains requirements associated 
with:
     Application submittal;
     Application deadline;
     Incomplete applications; and
     Application withdrawal.
    Application submittal. Because of the size and complexity of the 
anticipated biorefinery assistance projects, the Agency proposes to 
manage this program out of the National Office. Lenders will be 
required to submit applications (one original and two copies) to the 
Agency.
    Application deadline. As proposed, complete applications must be 
submitted to the Agency no later than June 1 of each fiscal year to be 
considered for funding in that fiscal year. If the Agency determines 
that a different application deadline is needed, it will publish a 
notice in the Federal Register identifying the new application deadline 
for that fiscal year. If the application deadline falls on a weekend or 
a federally-observed holiday, the deadline will be the next Federal 
business day.
    Even though there is a single application deadline, to assist in 
the implementation of the program and to manage work flow, the Agency 
is proposing two competitions for funds each fiscal year. The first 
competition will be among those complete and eligible applications 
received by March 1. The Agency will then make awards to eligible 
applications in this first pool of applications. The second competition 
will be among those complete applications received by June 1. This 
second competition could contain any eligible applications from the 
first competition that were not selected for funding.
    Incomplete applications. The Agency will reject all incomplete 
applications. For each incomplete application it receives, the Agency 
will notify the lender in writing of those elements that made the 
application incomplete. Lenders may resubmit such applications prior to 
the applicable application deadline. Applicants will be informed that 
the application was not processed and why.
    Application withdrawal. Because a borrower's circumstances can 
change after submittal of the application, under this section, the 
lender must notify the Agency if the project is no longer viable or the 
borrower no longer is requesting financial assistance for the project. 
Upon receipt of such notification, the Agency will either withdraw the 
application or rescind the selection of project, as applicable.
2. Application of Loan Guarantee Content (Sec.  4279.261)
    This section identifies the content for each application for loan 
guarantee

[[Page 20053]]

under this program. Each loan guarantee application must contain:
     A project summary;
     Lender's analysis and credit evaluation;
     Financial statements;
     Environmental information;
     Appraisal;
     Feasibility study;
     Business plan;
     Technical assessment;
     Economic analysis;
     Loan agreement;
     Lender certifications;
     Intergovernmental consultation;
     DUNS number;
     Bioenergy experience; and
     Any other information requested by the Agency or entities 
working on the Agency's behalf.
    Much of the application content is based on the Agency's Rural 
Energy for America Program, which has similar projects. However, 
because of the size of projects under the Biorefinery Assistance 
program, the Agency has modified similar provisions to require more 
information. The following paragraphs discuss key portions of the 
application content.
    Lender's analysis and credit evaluation (paragraph (b)). This 
paragraph requires the lender to provide a summary of the technology to 
be used in the project, the viability of such technology for the 
particular project application, and the development type (e.g., 
installation, construction, retrofit).
    Because of the size of the loans being guaranteed under the 
Biorefinery Assistance program, the Agency believes that it is 
necessary to provide more specific regulatory requirements for the 
submittal of credit reports by identifying the type of credit report 
(personal or commercial) that is to be submitted and on whom such 
credit reports are to be submitted. These additional requirements will 
help borrowers in preparing their applications and assist lenders 
during their due diligence process. The Agency is, therefore, proposing 
to require:
     Personal credit reports from an acceptable credit 
reporting company for those owning 20 percent or more interest in the 
borrower or any owner with more than 10 percent ownership interest in 
the borrower if there is no owner with more than 20 percent ownership 
interest in the borrower, including a proprietor (owner), each partner, 
officer, director, key employee, and stockholder, except for those 
corporations listed on a major stock exchange. Note that the 20 percent 
requirement is consistent with the Business and Industry Guaranteed 
Loan program. Credit reports are not required for elected and appointed 
officials when the borrower is a public body or non-profit corporation; 
and
     Commercial credit reports on the borrower and any parent, 
affiliate, and subsidiary firms.
    The lender must also include its credit evaluation, as specified in 
Sec.  4279.232.
    As found in the Section 9003 NOFA, the Agency is also proposing 
that, for loans of $125 million or more, an evaluation and credit 
rating of the total project's indebtedness, without consideration for a 
government guarantee, from a nationally-recognized rating agency be 
obtained. The Agency is requiring this because of the size of the risk 
associated with these projects.
    Financial statements (paragraph (c)). As proposed, financial 
statement will need to be submitted for all borrowers.
    For businesses that have been in existence for one or more years, 
their most recent audited financial statements will be submitted if the 
guaranteed loan is $3 million or more, unless alternative financial 
statements are authorized by the Agency. If the guaranteed loan is less 
than $3 million, however, the borrower's most recent audited or Agency-
acceptable financial statements of the borrower will be submitted. In 
proposing this $3 million threshold, the Agency reviewed the comments 
it received on a recently withdrawn guaranteed loan rule. For that 
rule, the Agency originally proposed a threshold of $1 million for 
requiring audited financial statements. Commenters were concerned that 
the expense of audited financial statements and the low threshold would 
be too punitive and the level should be left to the lender. After 
considering these comments, the Agency revised the $1 million to $3 
million and added a provision that alternative financial statements 
could be submitted provided they were approved by the Agency. The 
Agency believes these provisions are suitable to the Section 9003 
program.
    For businesses that have been in existence for less than one year, 
their most recent Agency-authorized financial statements, regardless of 
the amount of the guaranteed loan request, will be submitted.
    For all businesses, a current (not more than 90 days old) balance 
sheet; a pro forma balance sheet at startup; and projected balance 
sheets, income and expense statements, and cash flow statements for a 
period of not less than 3 years of stabilized operation will be 
submitted. Projections should be supported by a list of assumptions 
showing the basis for the projections.
    Lastly, the Agency may find it necessary to request additional 
financial information from the borrower because of the complexity of 
the project and the financial condition of the borrower. Thus, the 
Agency is reserving the right to request additional financial 
information.
    Environmental information (paragraph (d)). Lenders are required to 
submit with the application the environmental information specified in 
RD 1940-G, Exhibit H.
    Appraisals (paragraph (e)). In complying with Sec.  4279.244 (which 
was discussed early in this preamble), self-contained appraisals 
accompanied by a copy of a Phase I Environmental Site Assessment (ESA) 
in accordance with ASTM International standards must be submitted with 
the application if available.
    Feasibility study (paragraph (f)). Lenders are required to submit a 
feasibility study with each application for guarantee. The Agency is 
identifying a detailed list of components for Biorefinery Assistance 
program feasibility studies. The basic elements of this study are:
     Executive Summary.
     Economic feasibility.
     Market feasibility.
     Technical feasibility (including technical assessment).
     Financial feasibility.
     Management feasibility.
     Qualifications.
    Because of the size and complexity of these projects, and the loan 
amount being guaranteed under this program, the Agency is proposing 
very detailed and prescriptive requirements for the feasibility study. 
Each component specified for the feasibility study is generally found 
in other Agency programs, but in less detail.
    The specific components are essentially the same as those 
identified in the Section 9003 NOFA. One of the specific components 
presented in Table 1, Feasibility Study Components, was relocated to 
Sec.  4279.261(h), Technical Assessment, because it is more appropriate 
to that paragraph than in the table describing components of the 
feasibility study. In addition, the Agency has modified several of the 
components associated with management feasibility from those identified 
in the Section 9003 NOFA to more clearly articulate the type of 
management experience to be addressed.
    Business plan (paragraph (g)). Each lender must submit a business 
plan with each application. The business plan must include the 
following:

[[Page 20054]]

     The borrower's experience and succession planning when 
discussing the borrower's ownership and management;
     The names and a description of the relationship when 
discussing the borrower's parent, affiliates, and subsidiaries;
     The borrower's business strategy;
     Possible vendors and models of major system components;
     The availability of the resources (e.g., labor, raw 
materials, supplies) necessary to provide those products and services;
     Site location and its relation to product distribution 
(e.g., rail lines or highways) and any land use or other permits 
necessary to operate the facility;
     The market for the product and its competition, including 
any and all competitive threats and advantages;
     Projected balance sheets, income and expense statements, 
and cash flow statements for a period of not less than 3 years of 
stabilized operation; and
     A description of the proposed use of funds.
    If any of the information contained in the business plan is 
provided in the feasibility study, the lender will not be required to 
include such information in the business plan.
    Technical assessment (paragraph (h)). Because of the technical 
challenges that confront the construction and development of 
biorefineries, the Agency is further detailing the type of technical 
assessment to be submitted with the application. The Agency modeled 
this technical assessment, which is similar to that found in the 
Section 9003 NOFA, after the current provisions for such assessments 
for projects under the REAP guaranteed loan program.
    As noted earlier, one of the specific components from Table 1, 
Feasibility Study Components, was relocated to paragraph (h). This 
component states that the technical assessment must be based upon 
verifiable data and contain sufficient information and analysis so that 
a determination may be made on the technical feasibility of achieving 
the levels of income or production that are projected in the financial 
statements.
    In addition, the Section 9003 NOFA stated that ``All projects 
require the services of a professional engineer (PE).'' In the proposed 
rule, the Agency has revised this to read ``All projects require the 
services of an independent, third-party professional engineer.'' This 
change reflects a specific component, which had been in Table 1 in the 
Section 9003 NOFA, that discussed what constitutes an independent 
project engineer. The Agency believes that it is very important that 
technical feasibility be assessed by independent third-parties to 
ensure there is no conflict of interest in the preparation of the 
technical assessment.
    Economic analysis (paragraph (i)). For the same reasons it is 
requiring a detailed, prescriptive technical assessment, the Agency is 
specifying a detailed economic analysis of the project to be included 
in the feasibility analysis. The provisions for the economic analysis 
are the same as found in the Section 9003 NOFA.
    Loan Agreement (paragraph (j)). The Agency is requiring that the 
lender submit with the application a proposed loan agreement or a 
sample loan agreement with an attached list of the proposed loan 
agreement provisions, which will have to be executed by the lender and 
borrower before the Agency will issue a loan note guarantee. The list 
of loan agreement provisions to be included must conform to the list 
found in Sec.  4279.161(b)(11).
    Lender certification (paragraph (k)). Lenders will be required to 
submit certifications as specified in the B&I regulations at Sec.  
4279.161(b)(16). In addition, lenders will be required to certify that 
the project is also able to demonstrate technical merit.
    Bioenergy experience (paragraph (n)). This paragraph identifies the 
information lenders will be required to submit concerning the 
borrower's prior experience in bioenergy projects.
Guarantee Application Evaluation (Sec.  4279.265)
    Instead of evaluating biorefinery assistance applications for loan 
guarantees using the B&I procedures specified in Sec.  4279.165, the 
Agency is proposing a self-contained set of application evaluation 
procedures, as described below, for Biorefinery Assistance Guaranteed 
loan applications.
    General (paragraph (a)). When the Agency receives a complete 
application from an approved lender, it will review the application to 
determine if the borrower, lender, and project are eligible. The Agency 
will also review the application to determine whether the proposed 
project has technical merit, as determined by the Agency, and whether 
it has met each of three minimum financial metric criteria. 
Applications from lenders not approved by the Agency specifically for 
the Biorefinery Assistance program will not be processed.
    If it determines that the borrower, lender, or project is 
ineligible, the Agency will notify the lender, in writing, of the 
reasons and provide any applicable appeal rights. The Agency will 
discontinue processing such applications.
    Lastly, if the Agency determines it is unable to guarantee the loan 
at any time during the processing of the application and prior to 
issuance of the loan note guarantee, the Agency will inform the lender 
in writing. The Agency will include the reasons for denial of the 
guarantee in its notification to the lender. Because such a denial 
constitutes an adverse decision, the affected entities will have appeal 
rights.
    Technical merit determination (paragraph (b)). The Agency will use 
the information provided in the application to determine a project's 
technical merit. Any project determined by the Agency to be without 
technical merit will not be selected for funding. In evaluating and 
rating Biorefinery Assistance Guaranteed loan applications, the Agency 
may, at its discretion, engage the services of other government 
agencies or recognized industry experts in the applicable technology 
field. The Agency may use this evaluation and rating to determine the 
level of technical merit of the proposed project.
    Financial metric criteria (paragraph (c)). Using the information 
provided in the application, the Agency will determine if the project 
meets each of the following three financial metric criteria:
     A debt coverage ratio of 1.0 or higher;
     A debt-to-tangible net worth ratio of 4:1 or lower for 
startup businesses and of 9:1 or lower for existing businesses; and
     A discounted loan-to-value ratio of no more than 1.0.
    These criteria are to be calculated from the realistic information 
in the pro forma statements or borrower financial statements of a 
typical operating year after the project is completed and stabilized. 
The Agency is requiring these minimum financial criteria to reduce the 
chances that loan guarantees are sought for high risk projects and that 
such projects, even if an application is submitted, are not guaranteed 
by the Agency.
    Scoring applications (paragraph (d)). The Agency will score each 
eligible application that meets the minimum requirements for financial 
and technical feasibility using a set of evaluation criteria. The 
scoring criteria being proposed are specified in the 2008 Farm Bill.
    For the most part, the scoring criteria are the same as found in 
the Section 9003 NOFA, but the Agency is proposing a few changes to the 
scoring criteria and points found in the Section

[[Page 20055]]

9003 NOFA. The changes made reflect reconsideration by the Agency on 
how to prioritize projects for funding. These changes are summarized 
below.
    The Agency has revised how it will score whether the borrower is 
proposing to work with producer associations or cooperatives. As 
proposed, points will be awarded based on the dollar value of 
procurement or marketing agreements with producer associations and 
cooperatives obtained by the borrower relative to the dollar value of 
the project's feedstock, biofuel, and biobased by-product. In order to 
receive the points under this criterion, each of the following must be 
met:
     At least 60% of the dollar value of feedstock to be used 
by the proposed biorefinery will be supplied by producer associations 
and cooperatives;
     At least 60% of the dollar value of the advanced biofuel 
to be produced by the proposed biorefinery will be sold to producer 
associations and cooperatives; and
     At least 60% of the dollar value of the advanced biobased 
by-products to be produced by the proposed biorefinery will be sold to 
producer associations and cooperatives.
    To illustrate this criterion, consider a proposed biorefinery that 
will purchase $1,000,000 of feedstock and produce $5,000,000 worth of 
biofuel and $2,000,000 worth of biobased by-products. In order to 
receive the 5 points under this criterion, at least $500,000 worth of 
feedstock purchases must be from producer associations or cooperatives, 
at least $2,500,000 worth of biofuel must be sold to producer 
associations or cooperatives, and at least $1,000,000 worth of biobased 
by-products must be sold to producer associations or cooperatives. If 
any one of these is not achieved, no points will be awarded.
    The Agency has revised the method for awarding points under the 
level of financial participation by the borrower criterion. In the 
Section 9003 NOFA, points are awarded based on the percent tangible 
balance sheet equity that results from the borrower's cash equity 
injection plus other sources of funding. In the proposed rule, points 
will be awarded based on the debt-to-tangible net worth ratio that 
results from the borrower's cash equity injection plus other sources of 
funding.
    The Agency has removed cellulosic feedstocks as a scoring 
criterion. The Agency has determined that specific feedstocks should 
not receive preference over other feedstocks when evaluating 
applications; however, the Agency has determined that feedstocks that 
can be used for human or animal consumption should not receive the same 
preference as other feedstocks. Thus, the Agency is proposing to deduct 
5 points from applications that propose to use feedstocks that can be 
used for human or animal consumption.
    The Agency is being more specific, compared to the Section 9003 
NOFA, on how points will be awarded under the scoring criterion for 
local ownership. As proposed, points will be awarded on the basis of 
the percentage of local owners whose primary residence is within 20 
miles of the area supplying feedstock to the biorefinery. The Agency 
believes this will provide an easier metric on which to score this 
criterion. The Agency is also seeking comment this proposed method for 
scoring this criterion.
    The Agency has also revised the scoring criterion for ``first-of-a-
kind technology'' from whether the project ``is the first to use'' a 
particular technology, system, or process to whether the project ``uses 
a particular technology, system, or project that is not currently 
operating in the advanced biofuel market as of October 1 of the fiscal 
year for which funding is available.''
    The Agency adjusted the points that can be awarded for five of the 
scoring criteria, increasing the points for four criteria and 
decreasing the points for one criterion. The criteria for which the 
Agency has increased points are:
     Feedstock not previously used in the production of 
advanced biofuels (from 14 to 15 points);
     The potential for rural economic development (from 3 to 5 
points);
     The level of local ownership (from 13 to 15 points); and
     First of a kind technology (from 10 points to 15 points).
    The Agency has decreased the points that can be awarded, from 9 to 
5, for the criterion that addresses whether the proposed biorefinery 
will have positive impact on resource conservation, public health, and 
the environment.
    In response to the ANPRM, the Agency received a number of comments 
on the scoring criteria and points. After considering these comments, 
the Agency believes that the proposed criteria on which the Agency 
received comments are still appropriate for this program. In 
considering the comments, the Agency points out the following:
     Regarding the first scoring criterion, when determining 
whether a borrower has established a market, the Agency believes that 
it is important to have commitments and agreements on both the 
feedstock side of the project and on the sales side of the project. 
Thus, the Agency is continuing to require both supply and offtake 
commitments and agreements as part of the demonstration of whether a 
borrower has established a market.
     Regarding the second scoring criterion, it is the Agency's 
intent is to promote projects that will not compete for feedstocks that 
are already being used to supply another advanced biofuel facility. 
This criterion is designed to award points to such facilities. A 
comment was received that ``area'' (to assess whether the borrower 
proposes to place the biorefinery in an area that has other similar 
advanced biofuel facilities) should be broadly defined (State or 
region). For the proposed rule, the Agency has recast the wording 
associated with this criterion to make clearer how it will be applied. 
Beyond this change, the Agency does not believe it is necessary to 
revise this criterion based on this comment.
     Regarding the fifth criterion, level of financial 
participation, the proposed rule requires borrowers to provide at least 
20 percent cash equity into the project. It is the Agency's intent to 
score applications higher that can demonstrate more than this 20 
percent minimum (30 percent or more). Borrowers who meet the minimum 20 
percent cash equity are still eligible, but will not receive points 
under this criterion. Further, of all the criteria used to score 
applications, the Agency continues to believe that this criterion is 
the most important because it represents the best commitment of the 
borrower to the project. Therefore, the Agency continues to assign the 
highest potential points to this criterion.
    When demonstrating that a biofuels production technology will not 
have any economically significant negative impacts on existing 
manufacturing plants or other facilities that use similar feedstocks, 
the Agency would expect applicants to be able to identify the location 
of the biorefinery and its feedstock relative to the other 
biorefineries and the feedstock being used by those plants. Such an 
analysis would be part of the applicant's market analysis and 
feasibility study.
    Lastly, the Agency notes that, when it evaluates an application for 
the projects potential for rural economic development, it will be based 
on projections made by the applicant as reported in its application, 
including in the feasibility study and technical report.
    Ranking of applications (paragraph (e)). The Agency will rank the 
applications according to their scores. The Agency is proposing to rank 
applications twice each fiscal year. The Agency will rank the first set 
of applications (those complete and

[[Page 20056]]

eligible applications received by March 1) on or before May 31 and the 
second set (those complete and eligible applications received by June 
1) on or before August 31.
    All applications that are ranked in a given fiscal year will be 
considered by the Agency for selection for funding for the entire 
fiscal year. For example, a complete and eligible application scored 
and ranked in the first set of applications, but not selected for 
funding, will be carried forward into the second set of applications. 
When an application scored in first set of applications is carried 
forward into the second set of applications, it will be competed 
against all of the applications in the second set using its score from 
the first set of applications.
    Selection of applications for funding and for potential funding 
(paragraph (f)). In selecting applications for funding, the first 
criterion the Agency will use is the application's score, with higher 
scoring applications receiving first consideration for funding. A 
minimum score of 55 points is required in order to be considered for a 
guarantee.
    Before selecting applications for funding, the Agency will consider 
the following two factors, which may result in the Agency selecting a 
lower scoring application. These two factors are:
     Availability of budgetary authority; and
     Availability of other funding sources.
    In considering the availability of budgetary authority, the Agency 
will evaluate the size of the loan request relative to the budgetary 
authority that remains available to the program during the fiscal year 
in two ways:
     If sufficient budgetary authority remains to guarantee the 
higher scoring loan application and
     If the amount of the funding request is greater than 25 
percent of the Agency's outstanding budgetary authority for the 
program.
    If either case exists, the Agency may elect to select, after 
providing the applicant of the higher scoring application the 
opportunity to reduce its fund request, the next highest scoring 
application for further processing.
    Ranked applications not funded (paragraph (g)). This paragraph 
identifies how the Agency will dispose of applications that have been 
ranked, but not funded, including such applications that have been 
selected for funding but are missing information. The Agency notes that 
such a situation would only occur in those situations where additional 
information not relevant to scoring may be needed to continue the 
approval process (e.g., pending receipt of a particular certification). 
The Agency will not carry over into the next fiscal year a ranked 
application that is not funded in the fiscal year in which it was 
submitted. In such a situation, the Agency will notify the lender in 
writing.
    Wage rates (paragraph (h)). This paragraph identifies requirements 
associated with the wages paid to laborers and mechanics working on the 
project. This provision is included because it is required by the 2008 
Farm Bill.
Changes in Borrowers (Sec.  4279.280)
    This section states the B&I provisions for changes in borrowers 
found at Sec.  4279.180 apply except that the eligibility requirements 
of this program apply. Note that, as specified in Sec.  4279.180, all 
changes in borrowers must be approved by the Agency.
Conditions Precedent to Issuance of Loan Note Guarantee (Sec.  
4279.281)
    As proposed, the B&I provisions for conditions precedent to the 
issuance of the loan note guarantee found at Sec.  4279.181(a) through 
(o) will apply to this subpart, with several additions. The additions 
are as follows:
     For loans exceeding $150,000, the lender has certified its 
compliance with the Anti-Lobby Act (18 U.S.C. 1913). Also, if any funds 
have been, or will be, paid to any person for influencing or attempting 
to influence an officer or employee of any agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a 
Member of Congress in connection with this commitment providing for the 
United States to guarantee a loan, the lender shall completely disclose 
such lobbying activities in accordance with 31 U.S.C. 1352.
     Where applicable, the lender must certify that the 
borrower has obtained:
    (1) A legal opinion relative to the title to rights-of-way and 
easements. Lenders are responsible for ensuring that borrowers have 
obtained valid, continuous, and adequate rights-of-way and easements 
needed for the construction, operation and maintenance of a facility.
    (2) A title opinion or title insurance showing ownership of the 
land and all mortgages or other lien defects, restriction or 
encumbrances, if any. It is the responsibility of the lender to ensure 
that the borrower has obtained and recorded such releases, consents, or 
subordinations to such property rights from holders of outstanding 
liens or other instruments as may be necessary for the construction, 
operation and maintenance of the facility and to provide the required 
security. For example, when a site is for major structures for utility-
type facilities (such as a gas distribution system) and the lender and 
borrower are able to obtain only a right-of-way or easement on such 
site rather than a fee simple title, such a title opinion must be 
requested.
     The minimum financial criteria, including those financial 
criteria contained in the Conditional Commitment, have been maintained 
through the issuance of the loan note guarantee. Failure to maintain 
these financial criteria shall result in an ineligible application.
     The borrower is required to certify to the lender that all 
laborers and mechanics employed by contractors or subcontractors in the 
performance of construction work financed in whole or in part with 
guaranteed loan funds under this section shall be paid wages at rates 
not less than those prevailing on similar construction in the locality 
as determined by the Secretary of Labor in accordance with sections 
3141 through 3144, 3146, and 3147 of title 40, U.S.C. This 
certification is being required because these referenced provisions are 
a project eligibility requirement and the Agency needs assurance that 
these conditions are or will be complied with prior to issuing the loan 
note guarantee.
     The lender must certify that it has reviewed all contract 
documents and verified compliance with sections 3141 through 3144, 
3146, and 3147 of title 40, U.S.C., and title 29 of the Code of Federal 
Regulations. Further, the lender must certify that the same process 
will be completed for all future contracts and any changes to existing 
contracts.
     The lender must certify that the proposal for the facility 
seeking a guarantee under this subpart complies with all Federal, 
State, and local laws and regulatory rules that are in existence and 
that affect the project, the borrower, or lender activities.
     The lender must notify the Agency in writing whenever 
there has been a change in the classification of a loan within 15 
calendar days of such change.
    The Agency notes that one of the questions in the ANPRM was whether 
the Agency should issue the loan note guarantee prior to construction 
or whether the program should be limited to post-construction 
financing. One comment was received on this question, and it supported 
issuing the loan note guarantee prior to construction. The Section 9003 
NOFA provided for the issuance of the loan note guarantee prior to 
construction and the Agency has retained this in the proposed rule.

[[Page 20057]]

Requirements After Construction (Sec.  4279.290)
    Once the project has been constructed, the lender will be required 
to provide the Agency with annual reports from the borrower on the 
performance characteristics and results of the project and to conduct 
annual inspections of the project for the life of the guaranteed loan. 
The contents of the annual reports, which are identified in paragraphs 
(a)(1) through (8), are the same as those found in the Section 9003 
NOFA with one exception. The one exception is the addition that these 
reports include the results of the inspections conducted under Sec.  
4279.290(b). These reports and inspections are being required to assist 
the Agency in monitoring Agency risk and to ensure that the Agency is 
meeting its goals in implementing this and other programs under Title 
IX of the 2008 Farm Bill.
Servicing Biorefinery Assistance Guaranteed Loans (7 CFR 4287, Subpart 
D)
    The Agency is proposing to add a new subpart D to 7 CFR part 4287, 
Servicing, to address the servicing of Biorefinery Assistance 
Guaranteed loans. In general, the Agency is proposing to use the same 
procedures and provisions for servicing B&I guaranteed loans, as found 
in 7 CFR part 4287, subpart B, for servicing Biorefinery Assistance 
Guaranteed loans. There are, however, a number of additions and 
exceptions to the B&I provisions. These are described below.
    Periodic reports (Sec.  4287.307(a)). The lender must submit 
periodic reports, on a quarterly basis, unless otherwise determined by 
the Agency to meet the financial interests of the United States, 
regarding the condition of its Agency guaranteed loan portfolio 
(including borrower status and loan classification) and any material 
change in the general financial condition of the borrower since the 
last periodic report was submitted. The Agency is proposing that these 
reports be submitted on a quarterly basis, rather than a semi-annual 
basis, because it believes that such reports are required more 
frequently in order to provide better oversight on these large 
projects. This requirement is the same as found in the Section 9003 
NOFA.
    Default reports (Sec.  4287.307(b)). Lenders must submit monthly 
default reports, including borrower payment history, for each loan in 
monetary default using a form approved by the Agency. The Agency is 
requiring the submittal of this history in order to evaluate the 
financial condition of the borrower.
    Financial reports (Sec.  4287.307(c)). In addition to complying 
with the financial reports identified in Sec.  4287.107(d), financial 
statements may also be specified in the Conditional Commitment, lenders 
would be required to submit quarterly financial statements within 45 
days at the end of each quarter, and the annual financial statements 
must be audited financial statements. These provisions are the same as 
found in the Section 9003 NOFA.
    Additional loans (Sec.  4287.307(d)). Instead of complying with the 
B&I provisions for additional expenditure identified in Sec.  
4287.107(e), lenders would be required to comply with the additional 
loan provisions specified in this paragraph. The additional loan 
provisions are the same as found in the Section 9003 NOFA.
    Collateral inspection and release (Sec.  4287.307(e)). Instead of 
complying with the B&I provisions of Sec.  4287.113, the Agency is 
proposing specific provisions for loans guaranteed under this program. 
These provisions, which are similar to those found in the Section 9003 
NOFA, are being proposed by the Agency for Biorefinery Assistance 
Guaranteed loan projects because of the size of the loans being 
guaranteed under this section.
    As proposed, lenders will be required to inspect the collateral as 
often as necessary to properly service the loan. Lenders must obtain 
Agency approval prior to the release of collateral, except in those 
instances where the proceeds are used to pay down debt in order of lien 
priority, or to acquire replacement equipment, or where the release of 
collateral is made under the abundance of collateral provision of the 
applicable security agreement. The sale or release of collateral must 
be based on an arm's length transaction, unless otherwise approved by 
the Agency in writing.
    Lenders will be required to obtain appraisals on the collateral 
being released on all transactions exceeding $250,000. Such appraisals, 
which will be at the expense of the borrower, must meet the 
requirements specified in Sec.  4279.244.
    In addition, lenders will be allowed, over the life of the 
guaranteed loan, to release collateral with a cumulative value of up to 
20 percent of the original loan amount without Agency concurrence if 
the proceeds generated are used to pay down secured debt in the order 
of lien priority or to buy replacement collateral. Release of 
collateral with a cumulative value in excess of 20 percent of the 
original loan or when the proceeds will not be used to pay down secured 
debt or to buy replacement collateral, will have to be requested, in 
writing, by the lender, and will have to be concurred by the Agency, in 
writing, in advance of the release. The lender will also be required to 
complete a written evaluation justifying the release. This is the same 
as found in the Section 9003 NOFA.
    The Agency is proposing that under this program the value of 
collateral released at any one time and within any one calendar year 
cannot be more than 10 percent of the original loan amount.
    Finally, the Agency is proposing that any release of collateral 
must not adversely affect the project's operation or financial 
condition.
    Transfers and assumptions (Sec.  4287.307(f)). In addition to 
complying with the B&I provisions at Sec.  4287.134, the Agency is 
proposing that it may charge the lender a nonrefundable transfer fee at 
the time of a transfer application. The Agency will set the amount of 
the transfer fee in an annual notice of funds availability. All 
transfers need to be approved by the Agency. Further, and consistent 
with the Section 9003 NOFA, the Agency is including provisions 
addressing changes in the control of a borrower and changes in terms 
that result in an increase in the cost of the loan guarantee.
    Substitution of lender after issuance of the loan note guarantee 
(Sec.  4287.307(g)). Except for the provisions associated with Agency 
approval of a substitute lender, the provisions in Sec.  4287.135 will 
apply. The requirements the Agency is proposing to approve the 
substitution of a new lender, which are very similar to those found in 
the Section 9003 NOFA, will be used instead of the provisions found in 
Sec.  4287.135(a). In order to be approved by the Agency, the proposed 
substitute lender must:
     Be an eligible lender in accordance with Sec.  
4279.202(b);
     Be able to service the loan in accordance with the 
original loan documents; and
     Acquire title to the unguaranteed portion of the loan held 
by the original lender and assume all original loan requirements, 
including liabilities and servicing responsibilities.
    Default by borrower (Sec.  4287.307(h)). This paragraph identifies 
that defaults by borrowers will be handled in accordance with the B&I 
provisions for default by borrowers found at Sec.  4287.145, except 
with regard to when the lender must submit the notification to the 
Agency.
    Protective advances (Sec.  4287.307(i)). In addition to complying 
with the B&I

[[Page 20058]]

provisions for protective advances found at Sec.  4279.156, Agency 
written authorization will be required when cumulative protective 
advances exceed $100,000 (not $5,000 as found in the current B&I 
regulations) or 10 percent of the guaranteed loan, whichever is less.
    Determination of loss and payment (Sec.  4287.307(j)). This 
paragraph identifies that determination of loss and payment will be 
made in accordance with the B&I provisions found at Sec.  4279.158 and 
also requires the keeping of an annual report if the lender receives a 
final loss payment.

III. Request for Comments

    The Agency is interested in receiving comments on all aspects of 
the proposed rule. Areas in which the Agency is seeking specific 
comments are identified below. All comments should be submitted as 
indicated in the ADDRESSES section of this preamble.
    a. Preapplications. The Agency is requesting comment on whether or 
not a preapplication process for the Biorefinery Assistance program 
will provide sufficient benefit to lenders and borrowers. If you 
believe a preapplication process will be beneficial, please identify 
what elements you recommend for including in a preapplication. Please 
be sure to provide rationale for your position.
    b. Feedstocks. The Agency is requesting comment on whether a 
specific type of material that could serve as a feedstock for the 
production of advanced biofuels, as it relates to project eligibility 
for this program, should not be an eligible feedstock. For example, 
should by-products from the pulp and paper production process which are 
commonly used for on-site energy production or recycled be an eligible 
feedstock for a biorefinery seeking a loan guarantee under this 
program? Please be sure to provide rationale for your position.
    c. Rural area requirement. As proposed, only biorefineries located 
in rural areas will be eligible for loan guarantees. The Agency is 
requesting comment on whether biorefineries located in non-rural areas 
should also be eligible for a loan guarantee under this program. Please 
be sure to provide rationale for your position.
    d. Foreign ownership. The Agency is requesting comment on whether 
biorefineries that do not meet the proposed citizenship requirements 
(Sec.  4279.227(a)(2)) of at least 51 percent domestic ownership, 
including those owned entirely by immediate family members where only 
one of the family members meets citizenship requirements, should be 
eligible for a loan guarantee under this program. Please be sure to 
provide rationale for your position.
    e. Program obstacles. The Agency is requesting comments on any and 
all provisions for the proposed Biorefinery Assistance program and the 
Business and Industry Guaranteed Loan program that present an obstacle 
for stakeholders applying for assistance in either program. For each 
provision that you perceive as an obstacle, please be sure to provide 
your rationale and please identify potential alternatives that will 
improve participation in the program.
    f. Processing technology owned by the borrower. The Agency is 
requesting comments on whether the processing technology owned by the 
borrower should be included as an eligible project cost. Examples of 
potential eligible project costs associated with the processing 
technology could include, but not be limited to: highly skilled labor, 
laboratory costs and testing, and equipment. If so, how should the 
value of such processing technology be determined? In addition, for 
collateral analysis, what discounting factor should be applied?
    g. Percent revenue from sale of advanced biofuel. The Agency is 
requesting comments on the percentage of a biorefinery's sales that 
must come from the sale of eligible advanced biofuels in order to be 
eligible under this program. The Agency recognizes that other biobased 
products can potentially be a sizeable portion of a biorefinery's 
revenues and thus affect the viability of the biorefinery. However, the 
Agency's primary goal of this program is to encourage the production of 
advanced biofuels.
    h. Value of feedstock supplied by producer associations and 
cooperatives. The Agency is requesting comments on the percentage of 
feedstocks that must be purchased from producer association and 
cooperatives in order to be awarded points in the scoring of 
applications (see Sec.  4279.265(d)(4)). The Agency is proposing a 60 
percent threshold for such purchases. The Agency is seeking to try to 
strike a balance between giving priority to the purchase of feedstocks 
from producer associations and cooperatives and encouraging new 
feedstocks and technologies.
    i. Measuring potential for rural economic development. The Agency 
is requesting comments on metrics that can be used for measuring rural 
economic development. Please be sure to discuss the availability of 
data and how such data can be verified.
    j. Measuring positive impacts on resource conservation, public 
health, and the environment. The Agency is requesting comments on 
metrics that can be used for measuring each of these three areas--
resource conservation, public health, and the environment. The Agency 
is considering an approach that would award more points to facilities 
that produce biofuels that significantly reduce lifecycle GHGs by 
compared to conventional fuels they replace in the market; facilities 
that produce biofuels that do not demonstrate significant GHG 
reductions of would receive fewer points. For example, in the case of 
liquid biofuels, fuels that have been certified as advanced biofuels, 
cellulosic biofuels, or bio-based diesel under EPA's Renewable Fuels 
Standard achieve lifecycle GHG reductions of at least 50 percent 
relative to conventional liquid fuels, and so facilities that produce 
these fuels would receive higher points. We request comments on this 
approach as an alternative to the proposed rule text, including 
comments on how such an alternative should be drafted to best address 
the goal of lifecycle GHG reductions. We also request comment on 
specific metrics to promote positive impacts on air quality, water 
quality, and water quantity. Please be sure to be specific and, if 
proposing to measure data, to discuss the availability of data and how 
such data can be verified.
    k. Definition of agricultural producer. The Agency is requesting 
comments on the definition of agricultural producer in which ``50 
percent or greater of their gross income is derived from the 
[agricultural] operations.'' This definition is consistent with the 
current definition from in 7 CFR part 4280, subpart B, for the 
renewable energy system and energy efficiency improvement program. The 
Agency is interested in receiving comments on whether the percentage of 
income should be higher and, if so, at what level it should be set. 
Please be sure to provide rationale for your suggestions.
    l. Local ownership. The Agency is requesting comment on the 
definition of ``local owner'' in scoring applications under Sec.  
4279.265(d)(9) for determining the percent local ownership of the 
biorefinery. The Agency is seeking comment in particular on the 
relationship of an owner to the area supplying the feedstock to the 
biorefinery and whether the proposed distance of 20 miles beyond the 
feedstock area is reasonable. Please be sure to provide rationale for 
your suggestions.

[[Page 20059]]

List of Subjects in 7 CFR Parts 4279 and 4287

    Loan programs-Business and Industry-Rural development assistance, 
Biorefinery assistance, Rural areas.

    For the reasons set forth in the preamble, under the authority at 5 
U.S.C. 301 and 7 U.S.C. 1989, Chapter XLII of title 7 of the Code of 
Federal Regulations is proposed to be amended as follows:

CHAPTER XLII--RURAL BUSINESS-COOPERATIVE SERVICE AND RURAL UTILITIES 
SERVICE, DEPARTMENT OF AGRICULTURE

PART 4279--GUARANTEED LOANMAKING

    1. The authority citation for part 4279 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 7 U.S.C. 1932(a).

    2. Part 4279 is amended by adding a new subpart C to read as 
follows:
Subpart C--Biorefinery Assistance Loans
Sec.
4279.201 Purpose and scope.
4279.202 Compliance with Sec. Sec.  4279.1 through 4279.99.
4279.203-4279.224 [Reserved]
4279.225 Loan processing.
4279.226 Fees.
4279.227 Borrower eligibility.
4279.228 Project eligibility.
4279.229 Guaranteed loan funding.
4279.230 Subordination of lien position.
4279.231 Interest rates.
4279.232 Terms of loan.
4279.233 Credit evaluation.
4279.234-4279.236 [Reserved]
4279.237 Financial statements.
4279.238-4279.243 [Reserved]
4279.244 Appraisals.
4279.245-4279.249 [Reserved]
4279.250 Feasibility studies.
4279.251-4279.254 [Reserved]
4279.255 Loan priorities.
4279.256 Construction planning and performing development.
4279.257-4279.258 [Reserved]
4279.259 Borrower responsibilities.
4279.260 Guarantee applications--General.
4279.261 Application for loan guarantee content.
4279.262-4279.264 [Reserved]
4279.265 Guarantee application evaluation.
4279.266-4279.279 [Reserved]
4279.280 Changes in borrowers.
4279.281 Conditions precedent to issuance of loan note guarantee.
4279.282-4279.289 [Reserved]
4279.290 Requirements after project construction.
4279.291-4279.300 [Reserved]

Subpart C--Biorefinery Assistance Loans


Sec.  4279.201  Purpose and scope.

    The purpose and scope of this subpart is to provide financial 
assistance for the development and construction of commercial-scale 
biorefineries or for the retrofitting of existing facilities using 
eligible technology for the development of advanced biofuels.


Sec.  4279.202  Compliance with Sec. Sec.  4279.1 through 4279.99.

    Except as specified in paragraphs (a) through (l) of this section, 
all loans guaranteed under this subpart shall comply with the 
provisions found in Sec. Sec.  4279.1 through 4279.99 of this chapter.
    (a) Definitions. The terms used in this subpart are defined in 
either Sec.  4279.2 or in this paragraph. If a term is defined in both 
Sec.  4279.2 and this paragraph, it will have, for purposes of this 
subpart only, the meaning given in this paragraph.
    Advanced biofuel. Fuel derived from renewable biomass, other than 
corn kernel starch, to include:
    (i) Biofuel derived from cellulose, hemicellulose, or lignin;
    (ii) Biofuel derived from sugar and starch (other than ethanol 
derived from corn kernel starch);
    (iii) Biofuel derived from waste material, including crop residue, 
other vegetative waste material, animal waste, food waste, and yard 
waste;
    (iv) Diesel-equivalent fuel derived from renewable biomass, 
including vegetable oil and animal fat;
    (v) Biogas (including landfill gas and sewage waste treatment gas) 
produced through the conversion of organic matter from renewable 
biomass;
    (vi) Butanol or other alcohols produced through the conversion of 
organic matter from renewable biomass; and
    (vii) Other fuel derived from cellulosic biomass.
    Agency. The Rural Business-Cooperative Service or successor Agency 
assigned by the Secretary of Agriculture to administer the Biorefinery 
Assistance program. References to the National Office, Finance Office, 
State Office or other Agency offices or officials should be read as 
prefaced by ``Agency'' or ``Rural Development'' as applicable.
    Agricultural producer. An individual or entity directly engaged in 
the production of agricultural products, including crops (including 
farming); livestock (including ranching); forestry products; 
hydroponics; nursery stock; or aquaculture, whereby 50 percent or 
greater of their gross income is derived from the operations.
    Association of agricultural producers. An organization that 
represents agricultural producers and whose mission includes working on 
behalf of such producers and the majority of whose membership and board 
of directors is comprised of agricultural producers.
    Biofuel. A fuel derived from renewable biomass.
    Biorefinery. A facility (including equipment and processes) that 
converts renewable biomass into biofuels and biobased products and may 
produce electricity.
    Borrower. Any party that borrows or seeks to borrow money from the 
lender, including any party or parties liable for the guaranteed loan 
except guarantors.
    Business plan. A comprehensive document that clearly describes the 
borrower's ownership structure and management experience including, if 
applicable, discussion of a parent, affiliates, and subsidiaries; a 
discussion of how the borrower will operate the proposed project, 
including, at a minimum, a description of the business and project, the 
products and services to be provided, pro forma financial statements 
for a period of 2 years, including balance sheet, income and expense, 
and cash flows, and the availability of the resources necessary to 
provide those products and services.
    By-product. Any and all biobased products generated under normal 
operations of the proposed project that can be reasonably measured and 
monitored. By-products may or may not have a readily identifiable 
commercial use or value.
    Default. The condition that exists when a borrower is not in 
compliance with the promissory note, the loan agreement, or other 
related documents evidencing the loan.
    Eligible project costs. Those expenses approved by the Agency for 
the project.
    Eligible technology. Eligible technology is defined as either:
    (i) A technology that is being adopted in a viable commercial-scale 
operation of a biorefinery that produces an advanced biofuel; or
    (ii) A technology not described in paragraph (i) of this definition 
that has been demonstrated to have technical and economic potential for 
commercial application in a biorefinery that produces an advanced 
biofuel.
    Existing business. A business that has been in operation for at 
least one full year. Mergers, changes in the business name, or legal 
type of entity of a currently operating business, or expansions of 
product lines are considered to be existing businesses as long as there 
is not a significant change in operations.
    Farm cooperative. A business incorporated as a cooperative that is 
solely owned and controlled by agricultural producers.

[[Page 20060]]

    Farmer Cooperative Organization. An organization whose membership 
is composed of farm cooperatives.
    Feasibility study. An analysis by an independent qualified 
consultant of the economic, market, technical, financial, and 
management capabilities of a proposed project or business in terms of 
its expectation for success.
    Future recovery. Funds collected by lender after final loss claim.
    Immediate family. Individuals who are closely related by blood, 
marriage, or adoption, or live within the same household, such as a 
spouse, domestic partner, parent, child, brother, sister, aunt, uncle, 
grandparent, grandchild, niece, or nephew.
    Indian Tribe. This term has the meaning as defined in 25 U.S.C. 
450b.
    Institution of higher education. This term has the meaning as 
defined in 20 U.S.C. 1002(a).
    Loan classification. The assigned score or metric reflecting the 
lender's analysis of the degree of potential loss in the event of 
default.
    Local owner. An individual who owns any portion of an eligible 
advanced biofuel biorefinery and whose primary residence is located 
within 20 miles of the feedstock area supplying the advanced biofuel 
biorefinery.
    Market value. The amount for which a property will sell for its 
highest and best use at a voluntary sale in an arm's length 
transaction.
    Material adverse change. Any change in the purpose of the loan, the 
financial condition of the borrower, or the collateral, that might 
jeopardize loan performance.
    Negligent loan origination. The failure of a lender to perform 
those services that a reasonably prudent lender will perform in 
originating its own portfolio of unguaranteed loans. The term includes 
the concepts of failure to act, not acting in a timely manner, or 
acting in a manner contrary to the manner in which a reasonably prudent 
lender will act.
    Offtake agreement. The terms and conditions governing the sale and 
transportation of biofuels, biobased products, and electricity produced 
by the borrower to another party.
    Project. The facility or portion of facility producing eligible 
advanced biofuels and any eligible biobased by-product receiving 
funding under this subpart.
    Protective advances. Advances made by the lender for the purpose of 
preserving and protecting the collateral where the debtor has failed 
to, and will not or cannot, meet obligations to protect or preserve 
collateral.
    Regulated or supervised lender. A lender that is subject to credit 
examination or supervision by an appropriate agency of the United 
States or a State that supervises or regulates credit institutions.
    Renewable biomass.
    (1) Materials, pre-commercial thinnings, or invasive species from 
National Forest System land and public lands (as defined in section 103 
of the Federal Land Policy and Management Act of 1976 (43 U.S.C. 1702)) 
that:
    (i) Are by-products of preventive treatments that are removed to 
reduce hazardous fuels; to reduce or contain disease or insect 
infestation; or to restore ecosystem health;
    (ii) Will not otherwise be used for higher-value products; and
    (iii) Are harvested in accordance with applicable law and land 
management plans and the requirements for old-growth maintenance, 
restoration, and management direction of paragraphs (2), (3), and (4) 
of subsection (e) of section 102 of the Healthy Forests Restoration Act 
of 2003 (16 U.S.C. 6512) and large-tree retention of subsection (f) of 
that section; or
    (2) Any organic matter that is available on a renewable or 
recurring basis from non-Federal land or land belonging to an Indian or 
Indian Tribe that is held in trust by the United States or subject to a 
restriction against alienation imposed by the United States, including:
    (i) Renewable plant material, including feed grains; other 
agricultural commodities; other plants and trees; and algae; and
    (ii) Waste material, including crop residue; other vegetative waste 
material (including wood waste and wood residues); animal waste and by-
products (including fats, oils, greases, and manure); and food waste 
and yard waste.
    Retrofitting. The modification of a building or equipment to 
incorporate functions not included in the original design that allow 
for the production of advanced biofuels.
    Semi-work scale. A manufacturing plant operating on a limited 
commercial scale to provide final tests of a new product or process.
    Startup business. A business that has been in operation for less 
than one full year. Startup businesses include newly formed entities 
leasing space or constructing facilities in a new market area, even if 
the owners of the startup business own affiliated businesses doing the 
same kind of business. Newly-formed entities that are buying existing 
businesses or facilities will be considered an existing business as 
long as the business or facility being bought remains in operation and 
there is no significant change in operations.
    Surety. An entity that agrees to be primarily liable for the 
conduct, obligation, or performance of another.
    Tangible net worth. Tangible assets minus liabilities.
    Technical and economic potential. A technology not described in 
paragraph (i) of the definition of ``eligible technology'' is 
considered to have demonstrated ``technical and economic potential'' 
for commercial application in a biorefinery that produces an advanced 
biofuel if each of the following conditions is met:
    (i) The advanced biofuel biorefinery's likely financial and 
production success is evidenced in a thorough evaluation including, but 
not limited to:
    (A) Feedstocks;
    (B) Process engineering;
    (C) Siting;
    (D) Technology;
    (E) Energy production; and
    (F) Financial and sensitivity review using a banking industry 
software analysis program with appropriate industry standards.
    (ii) The evaluation in paragraph (i) of this definition is 
completed by an independent third-party expert in a feasibility study, 
technical report, or other analysis, each of which must be satisfactory 
to the Agency, that demonstrates the potential success of the project.
    (iii) The advanced biofuel technology has at least a 12 month (four 
seasons) operating cycle at semi-work scale.
    Tier 1 capital. This term has the meaning given it under 12 CFR 
Part 325 and as calculated under applicable Federal Deposit Insurance 
Corporation regulations.
    Tier 2 capital. This term has the meaning given it under applicable 
Federal Deposit Insurance Corporation regulations.
    Tier 1 leverage capital ratio. This term means the ratio of Tier 1 
capital to total assets as defined and calculated in 7 CFR part 325 and 
its appendices.
    Tier 1 risk-based capital ratio. This term has the meaning given it 
in 7 CFR part 325.
    Total project costs. The sum of all costs associated with a 
completed project.
    Total qualifying capital. This term has the meaning given to it 
under applicable Federal Deposit Insurance Corporation regulations.
    Total risk-based capital ratio. This term has the meaning given to 
it in 7 CFR part 325.
    Viable commercial-scale operation. An operation is considered to be 
a

[[Page 20061]]

viable commercial scale operation if it demonstrates that:
    (i) Its revenue will be sufficient to recover the full cost of the 
project over the term of the loan and result in an anticipated annual 
rate of return sufficient to encourage investors or lenders to provide 
funding for the project;
    (ii) It will be able to operate profitably without public and 
private sector subsidies upon completion of construction (volumetric 
excise tax is not included as a subsidy);
    (iii) Contracts for feedstocks are adequate to address proposed 
off-take from the biorefinery;
    (iv) The ability to achieve market entry, suitable infrastructure 
to transport the advanced biofuel to its market is available, and 
general market competitiveness of the advanced biofuel technology and 
related products;
    (v) It can be easily replicated and that replications can be sited 
at multiple facilities across a wide geographic area based on the 
proposed deployment plan; and
    (vi) The advanced biofuel technology has at least a 12 months (four 
seasons) operating history at semi-work scale, which demonstrates the 
ability to operate at a commercial scale.
    Working capital. Current assets available to support a business' 
operations and growth. Working capital is calculated as current assets 
less current liabilities.
    (b) Exception authority. The exception authority provisions of this 
paragraph apply to this subpart instead of those in Sec.  4279.15. The 
Administrator may, on a case-by-case basis, make an exception to any 
requirement or provision of this subpart that is not inconsistent with 
any authorizing statute or applicable law, if the Administrator 
determines that application of the requirement or provision would 
adversely affect the USDA's interest.
    (c) Lender eligibility requirements. The requirements specified in 
Sec.  4279.29 do not apply to this subpart. Instead, a lender must meet 
the requirements specified in paragraphs (c)(1) through (4) of this 
section in order to be approved for participation in this program.
    (1) The lender must be a regulated or supervised lender.
    (2) The lender must maintain at all times the minimum acceptable 
levels of capital specified in paragraphs (c)(2)(i) through (iii) of 
this section. If the regulated or supervised lender is a commercial 
bank or thrift, these levels will be based on those reflected in Call 
Reports and Thrift Financial Reports.
    (i) Total Risk-Based Capital ratio of 10 percent or higher;
    (ii) Tier 1 Risk-Based Capital ratio of 6 percent or higher; and
    (iii) Tier 1 Leverage Capital ratio of 5 percent or higher.
    (3) The lender must not be otherwise debarred or suspended by the 
Federal government.
    (4) The Agency will approve applications for loan guarantees only 
from lenders with adequate experience, as determined by the Agency, 
with similar projects and the expertise to make, secure, service, and 
collect loans approved under this subpart.
    (d) Independent credit risk analysis. The Agency will require an 
independent credit risk analysis (e.g., a credit rating or assessment) 
from a nationally-recognized rating agency for loans of $100,000 or 
more.
    (e) Environmental responsibilities. The provisions of this 
paragraph shall be used instead of the provisions specified in Sec.  
4279.30(c) for determining a lender's environmental responsibilities 
under this subpart. Lenders have a responsibility to become familiar 
with Federal environmental requirements; to consider, in consultation 
with the prospective borrower, the potential environmental impacts of 
their proposals at the earliest planning stages; and to develop 
proposals that minimize the potential to adversely impact the 
environment.
    (1) Lenders must alert the Agency to any controversial 
environmental issues related to a proposed project or items that may 
require extensive environmental review.
    (2) Lenders must help the borrower prepare Form RD 1940-20, 
``Request for Environmental Information'' (when required by subpart G 
of part 1940 of this title); assist in the collection of additional 
data when the Agency needs such data to complete its environmental 
review of the proposal; and assist in the resolution of environmental 
problems.
    (3) Lenders must ensure that the borrower has:
    (i) Provided the necessary environmental information to enable the 
Agency to undertake its environmental review process in accordance with 
subpart G of either 7 CFR part 1940 or successor regulations, including 
the provision of all required Federal, State, and local permits;
    (ii) Complied with any mitigation measures required by the Agency; 
and
    (iii) Not taken any actions or incurred any obligations with 
respect to the proposed project that will either limit the range of 
alternatives to be considered during the Agency's environmental review 
process or which will have an adverse effect on the environment.
    (f) Additional lender functions and responsibilities. In addition 
to the requirements in Sec.  4279.30, the requirements specified in 
paragraphs (f)(1) through (3) apply.
    (1) Any action or inaction on the part of the Agency does not 
relieve the lender of its responsibilities to originate and service the 
loan guaranteed under this subpart.
    (2) The lender must compile and maintain in its files a complete 
application for each guaranteed loan for at least 3 years after the 
final loss has been paid.
    (3) The lender must report to the Agency all conflicts of interest 
and appearances of conflicts of interest.
    (g) Certified lender program. Section 4279.43 does not apply to 
this subpart.
    (h) Oversight and monitoring. In addition to complying with 
requirements specified in Sec.  4279.44, the lender will cooperate 
fully with Agency oversight and monitoring of all lenders involved in 
any manner with any guarantee under the Biorefinery Assistance programs 
to ensure compliance with this subpart. Such oversight and monitoring 
will include, but is not limited to, reviewing lender records and 
meeting with lenders (in accordance with Sec.  4287.107(c)).
    (i) Conditions of guarantee. All loan guarantees under this subpart 
are subject to the provisions of Sec.  4279.72 and as specified in 
paragraphs (i)(1) through (4) of this section.
    (1) The guarantee under this section will be secured by a first 
lien on all collateral necessary to run the project in the event of the 
borrower's default.
    (2) The holder of a guaranteed portion shall have all rights of 
payment, as defined in the loan note guarantee, to the extent of the 
portion purchased. The lender will remain bound by all obligations 
under the loan note guarantee, Lender's Agreement, and Agency program 
regulations.
    (3) The lender must be shown as an additional insured on insurance 
policies (or other risk sharing instruments) that benefit the project 
and must be able to assume any contracts that are material to running 
the project including any feedstock or offtake agreements, as may be 
applicable.
    (4) If a lender does not satisfactorily comply with the provision 
found in Sec.  4279.256(c) and such failure leads to losses, then such 
losses may not be recoverable under the guarantee.
    (j) Sale or assignment of guaranteed loan. In addition to complying 
with the provisions of Sec.  4279.75, the guaranteed portion of the 
loan shall be fully

[[Page 20062]]

transferable to any accredited investor and the Agency may not 
guarantee a loan funded with the net proceeds of a bond described in 
section 142(a) of the Internal Revenue Code of 1986.
    (k) Minimum retention. The provisions of Sec.  4279.77 do not apply 
to this subpart. Instead, lenders may syndicate a portion of its risk 
position to other eligible lenders provided that at no time during the 
life of the guarantee may the original lender hold less than 50 percent 
of their original unguaranteed position in the loan.
    (l) Replacement of document. Documents must be replaced in 
accordance with Sec.  4279.84, except, in Sec.  4279.84(b)(1)(v), a 
full statement of the circumstances of any defacement or mutilation of 
the Loan Note Guarantee or Assignment Guarantee Agreement would also 
need to be provided.


Sec. Sec.  4279.203-4279.224   [Reserved]


Sec.  4279.225  Loan processing.

    Processing Biorefinery Assistance Guaranteed loans under this 
subpart shall comply with the provisions found in Sec. Sec.  4279.107 
through 4279.199 of this chapter, except as provided in the following 
sections.


Sec.  4279.226  Fees.

    Except as specified in paragraphs (a) and (b) of this section, the 
fee provisions specified in Sec.  4279.107 apply to guaranteed loans 
under this subpart.
    (a) Guarantee fee. The guarantee fee shall be as follows:
    (1) Two percent for guarantees on loans greater than 75 percent of 
total project costs.
    (2) One and one-half percent for guarantees on loans of greater 
than 65 percent but less than or equal to 75 percent of total project 
costs.
    (3) One percent for guarantees on loans of 65 percent or less of 
total project costs.
    (b) Annual renewal fee. The annual renewal fee, which may be passed 
on to the borrower, will be paid to the Agency for as long as the 
guaranteed loan is outstanding and is payable during the construction 
period. The annual renewal fee shall be as follows:
    (1) One hundred basis points (1 percent) for guarantees on loans 
that were originally greater than 75 percent of total project costs.
    (2) Seventy five basis points (0.75 percent) for guarantees on 
loans that were originally greater than 65 percent but less than or 
equal to 75 percent of total project costs.
    (3) Fifty basis points (0.50 percent) for guarantees on loans that 
were originally for 65 percent or less of total project costs.


Sec.  4279.227  Borrower eligibility.

    Borrower eligibility will be determined according to the provisions 
of this section in lieu of Sec.  4279.108.
    (a) Eligible entities. To be eligible, a borrower must meet the 
requirements specified in paragraphs (a)(1) through (3) of this 
section, as applicable.
    (1) Type of borrower. The borrower must be one of the following:
    (i) An individual;
    (ii) An entity;
    (iii) An Indian Tribe;
    (iv) A unit of State or local government;
    (v) A corporation;
    (vi) A farm cooperative;
    (vii) A farmer cooperative organization;
    (viii) An association of agricultural producers;
    (ix) A National Laboratory;
    (x) An institution of higher education;
    (xi) A rural electric cooperative;
    (xii) A public power entity; or
    (xiii) A consortium of any of the above entities.
    (2) Citizenship. Citizenship requirements are as follows:
    (i) Individual borrowers must be citizens of the United States 
(U.S.), the Republic of Palau, the Federated States of Micronesia, the 
Republic of the Marshall Islands, or American Samoa, or reside in the 
U.S. after legal admittance for permanent residence.
    (ii) Entities other than individuals must be at least 51 percent 
owned or controlled by individuals who are either citizens as 
identified under paragraph (a)(2)(i) of this section or legally 
admitted permanent residents residing in the U.S. When an entity owns 
an interest in the borrower, its citizenship will be determined by the 
citizenship of the individuals who own an interest in the entity or any 
sub-entity based on their ownership interest. This paragraph is not 
applicable if the entity is owned solely by members of an immediate 
family. In such instance, if at least 51 percent of the immediate 
family members are citizens or nationals, as defined in paragraph 
(a)(2)(i) of this section, then the entity is eligible.
    (iii) If the borrower is a subsidiary, the parent entity or the 
entities that have an ownership interest in that borrower must also be 
at least 51 percent owned by individuals who are either citizens or 
nationals of the United States (U.S.), the Republic of Palau, the 
Federated States of Micronesia, the Republic of the Marshall Islands, 
or American Samoa, or legally admitted permanent residents residing in 
the U.S.
    (iv) Corporate borrowers traded on major United States stock 
exchanges will be presumed to have more than 51 percent of their owners 
as United States citizens.
    (3) Legal authority and responsibility. Each borrower must have, or 
obtain, the legal authority necessary to construct, operate, and 
maintain the proposed facility and services and to obtain, give 
security for, and repay the proposed loan.
    (b) Ineligible entities. A borrower will be considered ineligible 
for a guarantee if the borrower, any owner with more than 20 percent 
ownership interest in the borrower, or any owner with more than 3 
percent ownership interest in the borrower if there is no owner with 
more than 20 percent ownership interest in the borrower:
    (1) Has an outstanding judgment obtained by the U.S. in a Federal 
Court (other than U.S. Tax Court),
    (2) Is delinquent on the payment of Federal income taxes,
    (3) Is delinquent on a Federal debt, or
    (4) Is debarred or suspended from receiving Federal assistance.


Sec.  4279.228  Project eligibility.

    In lieu of the requirements specified in Sec.  4279.113, to be 
eligible for a guaranteed loan under this subpart, at a minimum, a 
borrower and project, as applicable, must meet each of the requirements 
specified in paragraphs (a) through (f) of this section.
    (a) The project must be located in a rural area (as defined in 
paragraph (f) of this section).
    (b) The project must be for either:
    (1) The development and construction of commercial-scale 
biorefineries using eligible technology or
    (2) The retrofitting of existing facilities, including, but not 
limited to, wood products facilities and sugar mills, with eligible 
technology.
    (c) The project must use an eligible feedstock for the production 
of an advanced biofuel. Eligible feedstocks include, but are not 
limited to, renewable biomass, primarily organic biodegradable 
components (by weight) of municipal solid waste, and by-products of the 
pulping process. For the purposes of this subpart, recycled paper is 
not an eligible feedstock.
    (d) More than 70 percent of the revenue generated by the 
biorefinery must be from the sale of advanced biofuel.
    (e) The project must have cash equity injection of not less than 20 
percent of eligible project costs.
    (f) For the purposes of this subpart, the term ``Rural or rural 
area'' means any area of a State not in a city or town that has a 
population of more than 50,000 inhabitants, according to the latest 
decennial census of the United States,

[[Page 20063]]

and the contiguous and adjacent urbanized area. In determining which 
census blocks in an urbanized area are not in a rural area, the Agency 
shall exclude any cluster of census blocks that will otherwise be 
considered not in a rural area only because the cluster is adjacent to 
not more than 2 census blocks that are otherwise considered not in a 
rural area under this definition.
    (1) For the purposes of this definition, cities and towns are 
incorporated population centers with definite boundaries, local self 
government, and legal powers set forth in a charter granted by the 
State.
    (2) For the Commonwealth of Puerto Rico, the island is considered 
rural and eligible for Business Programs assistance, except for the San 
Juan Census Designated Place (CDP) and any other CDP with greater than 
50,000 inhabitants. CDPs with greater than 50,000 inhabitants, other 
than the San Juan CDP, may be determined to be eligible if they are 
``not urban in character.'' Any such requests must be forwarded to the 
National Office, Business and Industry Division, with supporting 
documentation as to why the area is ``not urban in character'' for 
review, analysis, and decision by the Under Secretary of Rural 
Development.
    (3) For the State of Hawaii, all areas within the State are 
considered rural and eligible for Business Programs assistance, except 
for the Honolulu CDP within the County of Honolulu.
    (4) For the purpose of defining a Rural Area in the Republic of 
Palau, the Federated States of Micronesia, and the Republic of the 
Marshall Islands, the Agency shall determine what constitutes Rural and 
Rural Area based on available population data.


Sec.  4279.229  Guaranteed loan funding.

    Instead of the provisions found in Sec.  4279.119, the provisions 
of this section apply to loans guaranteed under this subpart.
    (a) In administering this program's budgetary authority each fiscal 
year, the Agency will allocate up to, but no more, than 50 percent of 
its budgetary authority to fund applications received by the end of the 
first application window. Any funds not obligated to support 
applications submitted during the first application window will be 
available to support applications received during the second window. 
The Agency, therefore, will have a minimum of 50 percent of each fiscal 
year's budgetary authority for this program available to support 
applications received during the second application window.
    (b) The amount of a loan guaranteed for a project under this 
subpart will not exceed 80 percent of total eligible project costs. 
Total Federal participation will not exceed 80 percent of total 
eligible project costs. Eligible project costs are specified in 
paragraph (d) of this section.
    (c) The maximum principal amount of a loan guaranteed under this 
subpart is $250 million to one borrower; there is no minimum amount. If 
an eligible borrower receives other direct Federal funding (i.e., 
direct loans and grants) for a project, the amount of the loan that the 
Agency will guarantee under this subpart must be reduced by the same 
amount of the other direct Federal funding that the eligible borrower 
received for the project. For example, an eligible borrower is applying 
for a loan guarantee on a $1 million project. The borrower provides the 
minimum matching requirement of 20 percent, or $200,000. This leaves 
$800,000 in other funding needed to implement the project. If the 
borrower receives no other direct Federal funding for this project and 
requests a guarantee for the $800,000, the Agency will consider a 
guarantee on the $800,000. However, if this borrower receives $100,000 
in other direct Federal funding for this project, the Agency will only 
consider a guarantee on $700,000.
    (d) The maximum guarantee on the principal and interest due on a 
loan guaranteed under this subpart will be determined as specified in 
paragraphs (d)(1) through (3) of this section.
    (1) If the loan amount is equal to or less than $80 million, 80 
percent.
    (2) If the loan amount is more than $80 million and less than $125 
million, 80 percent on the first $80 million and 70 percent on the loan 
amount that is greater than $80 million.
    (3) If the loan amount is equal to or more than $125 million, 60 
percent on the entire loan amount.
    (e) Eligible project costs are only those costs associated with the 
items listed in paragraphs (e)(1) through (7) of this section, as long 
as the items are an integral and necessary part of the total project, 
as determined by the Agency.
    (1) Purchase and installation of equipment (new, refurbished, or 
remanufactured), except agricultural tillage equipment, used equipment, 
and vehicles.
    (2) Construction or retrofitting.
    (3) Permit and license fees.
    (4) Working capital.
    (5) Land acquisition.
    (6) Cost of financing, excluding guarantee and renewal fees.
    (7) Any other item identified by the Agency in a notice published 
in the Federal Register.


Sec.  4279.230  Subordination of lien position.

    In addition to complying with the provisions found in Sec.  
4279.123, a subordination must not extend the term of the guaranteed 
loan.


Sec.  4279.231  Interest rates.

    Instead of the provisions found in Sec.  4279.125, the interest 
rate provisions of this section apply to loans guaranteed under this 
subpart.
    (a) General. The interest rate for the guaranteed loan will be 
negotiated between the lender and the applicant. The interest rate 
charged must be in line with interest rates on other similar government 
guaranteed loan programs, and is subject to Agency review and approval.
    (1) The interest rate may be either fixed or variable, as long as 
it is a legal rate, and shall be fully amortizing.
    (2) The interest rate for both the guaranteed and unguaranteed 
portions of the loan must be of the same type (i.e., both fixed or both 
variable).
    (3) The guaranteed and unguaranteed portions of the loan can bear 
interest at different rates, provided that the blended rate on the 
entire guaranteed loan shall not exceed the rate on the guaranteed 
portion of the loan by more than one (1) percent.
    (4) Both portions of the loan must amortize at the same rate.
    (b) Variable rates. A variable interest rate agreed to by the 
lender and borrower must be based on published indices, such as the 
Prime Rate, applicable Treasury rate, or the London Inter Bank Offering 
Rate (LIBOR), and agreed to by the lender and the Agency. Variable 
rates should have either an internal or external interest rate cap.
    (1) The variable interest rate may be adjusted at different 
intervals during the term of the loan, but the adjustments may not be 
more often than quarterly and no less than yearly to prevent negative 
amortization, and must be specified in the loan agreement.
    (2) Variable rate loans will not provide for negative amortization 
nor will they give the borrower the ability to choose its payment among 
various options.
    (3) The lender must incorporate, within the variable rate 
Promissory Note at loan closing, the provision for adjustment of 
payment installments coincident with an interest-rate adjustment.
    (4) The lender will ensure that the outstanding principal balance 
is properly amortized within the

[[Page 20064]]

prescribed loan maturity to eliminate the possibility of a balloon 
payment at the end of the loan.
    (c) Interest changes. Any change in the interest rate between the 
date of issuance of the Conditional Commitment and before the issuance 
of the Loan Note Guarantee must be approved, in writing, by the Agency 
approval official. Approval of such a change will be shown as an 
amendment to the Conditional Commitment. Such changes are subject to 
the restrictions set forth in the following paragraphs.
    (1) Reductions. The borrower, lender, and holder (if any) may 
collectively initiate a permanent or temporary reduction in the 
interest rate of the guaranteed loan at any time during the life of the 
loan upon written agreement among these parties. The Agency must be 
notified by the lender, in writing, within 15 days of the change. If 
any of the guaranteed portion has been purchased by the Agency, then 
the Agency will affirm or reject interest rate change proposals in 
writing. The Agency will concur in such interest-rate changes only when 
it is demonstrated to the Agency that the change is a more viable 
alternative than initiating or proceeding with liquidation of the loan 
or continuing with the loan in its present state.
    (i) Fixed rates can be changed to variable rates to reduce the 
borrower's interest rate only when the variable rate has a ceiling for 
the life of the guaranteed loan that is less than or equal to the 
original fixed rate.
    (ii) The interest rates, after adjustments, must comply with the 
requirements for interest rates on new loans as established under this 
Notice.
    (iii) The lender is responsible for the legal documentation of 
interest-rate changes by an endorsement or any other legally effective 
amendment to the promissory note; however, no new notes may be issued. 
Copies of all legal documents must be provided to the Agency.
    (2) Increases. Increases in interest rates are not permitted beyond 
what is provided in the loan documents. Increases from a variable 
interest rate to a higher interest rate that is a fixed rate are 
allowed, subject to concurrence by the Agency.


Sec.  4279.232  Terms of loan.

    Instead of the provisions found in Sec.  4279.126, the provisions 
of this section apply to loans guaranteed under this subpart, except as 
provided in Sec.  4279.232(d).
    (a) The repayment term for a loan under this subpart will be for a 
maximum period of 20 years or 85 percent of the useful life of the 
project, as determined by the lender and confirmed by the Agency, 
whichever is less. The length of the loan term shall be the same for 
both the guaranteed and unguaranteed portions of the loan.
    (b) Guarantees must be provided only after consideration is given 
to the borrower's overall credit quality and to the terms and 
conditions of any applicable subsidies, tax credits, and other such 
incentives.
    (c) All loans guaranteed under this subpart must be financially 
sound and feasible, with reasonable assurance of repayment.
    (d) Repayment of the loan shall be in accordance with Sec.  
4279.125(a) and Sec.  4279.126(b), (c), and (d).


Sec.  4279.233  Credit evaluation.

    Instead of the provisions found in Sec.  4279.131, the provisions 
of this section apply to loans guaranteed under this subpart. For all 
applications for guarantee, the lender must prepare a credit 
evaluation. An acceptable credit evaluation must:
    (a) Use credit documentation procedures and an underwriting process 
that are consistent with generally accepted commercial lending 
practices, and
    (b) Include an analysis of the credit factors associated with each 
guarantee application to ensure loan repayment, including consideration 
of each of the following five elements.
    (1) Credit worthiness. Those financial qualities that generally 
impel the borrower to meet its obligations as demonstrated by its 
credit history.
    (2) Cash flow. A borrower's ability to produce sufficient cash to 
repay the loan as agreed.
    (3) Capital. The financial resources that the borrower currently 
has and those it is likely to have when payments are due. The borrower 
must be adequately capitalized.
    (4) Collateral. The assets, including processing technology owned 
by the borrower, less those acquired with other Federal funds pledged 
by the borrower in support of the loan. Collateral must have documented 
value sufficient to protect the interest of the lender and the Agency 
and the discounted collateral value must be at least equal to the loan 
amount. Lenders will discount collateral consistent with sound loan-to-
value policy.
    (5) Conditions. The general business environment and status of the 
borrower's industry.
    (c) When determining the credit quality of the borrower, the lender 
must include the following in its analysis:
    (1) Borrowers shall demonstrate evidence of cash equity injection 
in the project of not less than 20 percent of eligible project costs. 
The fair market value of equity in real property that is to be pledged 
as collateral for the loan may be substituted in whole or in part to 
meet the cash equity requirement. However, the appraisal completed to 
establish the fair market value of the real property must not be more 
than 1 year old unless a more recent appraisal is requested by the 
Agency in order to reflect market conditions. The appraisal used to 
establish fair market value of the real property must conform to the 
requirements of Sec.  4279.244. Otherwise, cash equity injection must 
be in the form of cash.
    (2) The credit analysis must also include spreadsheets of the 
balance sheets and income statements of the borrower for the 3 previous 
years (for existing businesses), pro forma balance sheets at startup, 
and projected yearend balance sheets and income statements for a period 
of not less than 3 years of stabilized operation, with appropriate 
ratios and comparisons with industrial standards (such as Dun & 
Bradstreet or Robert Morris Associates) to the extent industrial 
standards are available.
    (3) All data must be shown in total dollars and also in common size 
form, obtained by expressing all balance sheet items as a percentage of 
assets and all income and expense items as a percentage of sales.


Sec. Sec.  4279.234-4279.236  [Reserved]


Sec.  4279.237  Financial statements.

    The provisions of Sec.  4279.137 do not apply to this subpart. 
Instead, the submittal of financial statements with the loan guarantee 
application must meet the requirements specified in Sec.  4279.261(c).


Sec. Sec.  4279.238-4279.243  [Reserved]


Sec.  4279.244  Appraisals.

    All appraisals must be in accordance with Sec.  4279.144 and each 
appraisal must be a complete self-contained appraisal. Lenders must 
complete at least a Transaction Screen Questionnaire for any 
undeveloped sites and a Phase I Environmental Site Assessment in 
accordance with ASTM International Standards on existing business 
sites, which should be provided to the appraiser for completion of the 
self-contained appraisal. Specialized appraisers will be required to 
complete appraisals under this section. The Agency may approve a waiver 
of this requirement only if a specialized appraiser does not exist in a 
specific industry or hiring one will cause an undue financial burden to 
the borrower.

[[Page 20065]]

Sec. Sec.  4279.245-4279.249  [Reserved]


Sec.  4279.250  Feasibility studies.

    The provisions of Sec.  4279.150 do not apply to this subpart. 
Instead, feasibility studies must meet the requirements specified in 
Sec.  4279.261(f).


Sec. Sec.  4279.251-4279.254  [Reserved]


Sec.  4279.255  Loan priorities.

    The provisions of Sec.  4279.155 do not apply to this subpart.


Sec.  4279.256  Construction planning and performing development.

    The lender must comply with Sec.  4279.156(a) through (c), except 
as otherwise provided in paragraphs (a) through (f) of this section.
    (a) Architectural and engineering practices. Under paragraph Sec.  
4279.156(a), the lender must also ensure that all project facilities 
are designed utilizing accepted architectural and engineering practices 
that conform to the requirements of this subpart.
    (b) Onsite inspector. The lender must provide an onsite project 
inspector.
    (c) Changes and cost overruns. The borrower shall be responsible 
for any changes or cost overruns. If any such change or cost overrun 
occurs, then any change order must be expressly approved by the Agency 
which approval shall not be unreasonably withheld, and neither the 
lender nor borrower will divert funds from purposes identified in the 
guaranteed loan application approved by the Agency to pay for any such 
change or cost overrun without the express written approval of the 
Agency. In no event will the current loan be modified or a subsequent 
guaranteed loan be approved to cover any such changes or costs. In the 
event of any of the aforementioned increases in cost or expenses, the 
borrower must provide for such increases in a manner that does not 
diminish the borrower's operating capital. Failure to comply with the 
terms of this paragraph will be considered a material adverse change in 
the borrower's financial condition, and the lender must address this 
matter, in writing, to the Agency's satisfaction.
    (d) New draw certifications. The following three certifications are 
required for each new draw:
    (1) Certification by the project engineer to the lender that the 
work referred to in the draw has been successfully completed;
    (2) Certification from the lender that all debts have been paid and 
all mechanics' liens have been waived; and
    (3) Certification from the lender that the borrower is complying 
with the Davis-Bacon Act.
    (e) Surety. Surety will be required in cases when the guarantee 
will be issued prior to completion of construction unless the 
contractor will receive a lump sum payment at the end of work. Surety 
will be made a part of the contract, if the borrower requests it or if 
the contractor requests partial payments for construction work. In such 
cases where no surety is provided and the project involves pre-
commercial technology, first of its type in the U.S., or new designs 
without sufficient operating hours to prove their merit, a latent 
defects bond may be required by the Agency to cover the work.
    (f) Reporting during construction. During the construction of the 
project, lenders shall submit quarterly construction progress reports 
to the Agency. These reports must contain, at a minimum, planned and 
completed construction milestones, loan advances, and personnel hiring, 
training, and retention. This requirement applies to both the 
development and construction of commercial-scale biorefineries and to 
the retrofitting of existing facilities using eligible technology for 
the development of advanced biofuels. The lender must expeditiously 
report any problems in project development to the Agency.


Sec. Sec.  4279.257-4279.258  [Reserved]


Sec.  4279.259  Borrower responsibilities.

    (a) Federal, State, and local regulations. Borrowers must comply 
with all Federal, State, and local laws and rules that are in existence 
and that affect the project including, but not limited to:
    (1) Land use zoning;
    (2) Health, safety, and sanitation standards as well as design and 
installation standards; and
    (3) Protection of the environment and consumer affairs.
    (b) Permits, agreements, and licenses. Borrowers must obtain all 
permits, agreements, and licenses that are applicable to the project.
    (c) Insurance. The borrower is responsible for maintaining all 
hazard, flood, liability, worker compensation, and personal life 
insurance, when required, on the project.
    (d) Access to borrower's records. Except as provided by law, upon 
request by the Agency, the borrower will permit representatives of the 
Agency (or other agencies of the U.S. Department of Agriculture or 
Federal Departments as authorized by the U.S. Department of 
Agriculture) to inspect and make copies of any of the records of the 
borrower pertaining to any Agency guaranteed loan. Such inspection and 
copying may be made during regular office hours of the borrower or at 
any other time agreed upon between the borrower and the Agency.
    (e) Access to the project. The borrower must allow the Agency 
access to the project and its performance information until the loan is 
repaid in full and permit periodic inspection of the project by a 
representative of the Agency.


Sec.  4279.260  Guarantee applications-General.

    The provisions of Sec.  4279.161 do not apply to this subpart. 
Instead, the application provisions of this section and Sec.  4279.261 
apply to the preparation of Biorefinery Assistance Guaranteed loan 
applications.
    (a) Application submittal. For each guarantee request, the lender 
must submit to the Agency an application that is in conformance with 
Sec.  4279.261. One original completed application and two hard copies 
of the complete application, including all attachments, are to be 
submitted to the Agency.
    (b) Application deadline. Unless otherwise specified by the Agency 
in a notice published in the Federal Register, complete applications 
must be received by the Agency on or before by June 1 of each year to 
be considered for funding for that fiscal year. If the application 
deadline falls on a weekend or a Federally-observed holiday, the 
deadline will be the next Federal business day.
    (c) Incomplete applications. Incomplete applications will be 
rejected. Lenders will be informed of the elements that made the 
application incomplete. If a resubmitted application is received by the 
applicable application deadline, the Agency will reconsider the 
application.
    (d) Application withdrawal. During the period between the 
submission of an application and the execution of documents, the lender 
must notify the Agency, in writing, if the project is no longer viable 
or the borrower is no longer requesting financial assistance for the 
project. When the lender so notifies the Agency, the selection will be 
rescinded or the application withdrawn.


Sec.  4279.261  Application for loan guarantee content.

    Approved lenders must submit an Agency-approved application form 
for each loan guarantee sought under this subpart. Loan guarantee 
applications from approved lenders must contain the information 
specified in paragraphs (a) through (n) of this section, organized 
pursuant to a Table of contents in a

[[Page 20066]]

chapter format, and in paragraph (o) of this section as applicable.
    (a) Project Summary. Provide a concise summary of the proposed 
project and application information, project purpose and need, and 
project goals, including the following:
    (1) Title. Provide a descriptive title of the project.
    (2) Borrower eligibility. Describe how the borrower meets the 
eligibility criteria identified in Sec.  4279.227.
    (3) Project eligibility. Describe how the project meets the 
eligibility criteria identified in paragraph (c) of this section. 
Clearly state whether the application is for the construction and 
development of a biorefinery or for the retrofitting of an existing 
facility. Provide results from demonstration or pilot facilities that 
prove the technology proposed to be used meets the definition of 
eligible technology. Additional project description information will be 
needed later in the application process.
    (4) Matching funds. Submit a spreadsheet identifying sources, 
amounts, and availability of matching funds. The spreadsheet must also 
include a directory of matching funds source contact information. 
Attach any applications, correspondence, or other written communication 
between borrower and matching fund source.
    (b) Lender's analysis and credit evaluation (conforming to Sec.  
4279.232(b)). This analysis shall include:
    (1) A summary of the technology to be used in the project;
    (2) The viability of such technology for the particular project 
application;
    (3) The development type (e.g., installation, construction, 
retrofit);
    (4) The credit reports of the borrower, its principals, and any 
parent, affiliate, or subsidiary as follows:
    (i) A personal credit report from an acceptable credit reporting 
company for individuals owning 20 percent or more interest in the 
borrower or any owner with more than 10 percent ownership interest in 
the borrower if there is no owner with more than 20 percent ownership 
interest in the borrower, including a proprietor (owner), each partner, 
officer, director, key employee, and stockholder, except for when the 
borrower is a corporation listed on a major stock exchange. Credit 
reports are not required for elected and appointed officials when the 
borrower is a public body or non-profit corporation; and
    (ii) Commercial credit reports on the borrower and any parent, 
affiliate, and subsidiary firms;
    (5) The credit analysis specified in Sec.  4279.232(b); and
    (6) For loans of $125 million or more, an evaluation and credit 
rating of the total project's indebtedness, without consideration for a 
government guarantee, from a nationally-recognized rating agency.
    (c) Financial statements. Financial statements as follows:
    (1) For businesses that have been in existence for one or more 
years,
    (i) The most recent audited financial statements of the borrower if 
the guaranteed loan is $3 million or more, unless alternative financial 
statements are authorized by the Agency; or
    (ii) The most recent audited or Agency-acceptable financial 
statements of the borrower if the guaranteed loan is less than $3 
million.
    (2) For businesses that have been in existence for less than one 
year, the most recent Agency-authorized financial statements of the 
borrower regardless of the amount of the guaranteed loan request.
    (3) For all businesses, a current (not more than 90 days old) 
balance sheet; a pro forma balance sheet at startup; and projected 
balance sheets, income and expense statements, and cash flow statements 
for a period of not less than 3 years of stabilized operation. 
Projections should be supported by a list of assumptions showing the 
basis for the projections.
    (4) Depending on the complexity of the project and the financial 
condition of the borrower, the Agency may request additional financial 
statements and additional related information.
    (d) Environmental information. Environmental information required 
by the Agency to conduct its environmental reviews (as specified in RD 
1940-G, Exhibit H).
    (e) Appraisals. An appraisal conducted as specified under Sec.  
4279.244.
    (f) Feasibility study. Elements in an acceptable feasibility study 
include, but are not limited to, the elements outlined in Table 1. In 
addition, as part of the feasibility study, both a technical assessment 
and economic analysis of the project are required, as specified in 
paragraphs (h) and (i) of this section.

                  Table 1--Feasibility Study Components
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
(A) Executive Summary
------------------------------------------------------------------------
    Introduction/Project Overview (Brief general overview of project
     location, size, etc.)
    Economic feasibility determination.
    Market feasibility determination.
    Technical feasibility determination.
    Financial feasibility determination.
    Management feasibility determination.
    Recommendations for implementation.
------------------------------------------------------------------------
(B) Economic Feasibility
------------------------------------------------------------------------
    Information regarding project site;
    Availability of trained or trainable labor;
    Availability of infrastructure, including utilities, and rail, air
     and road service to the site.
    Feedstock:
        Feedstock source management
        Estimates of feedstock volumes and costs
        Collection, Pre-Treatment, Transportation, and Storage
    Document that any and all woody biomass feedstock cannot be used as
     a higher value wood-based product.
    Impacts on existing manufacturing plants or other facilities that
     use similar feedstock if the borrower's proposed biofuel production
     technology is adopted.
    Project impact on resource conservation, public health, and the
     environment.
    Overall economic impact of the project including any additional
     markets created for agricultural and forestry products and
     agricultural waste material and potential for rural economic
     development.

[[Page 20067]]

 
    Feasibility/plans of project to work with producer associations or
     cooperatives including estimated amount of annual feedstock and
     biofuel and biobased by-product dollars from producer associations
     and cooperatives.
------------------------------------------------------------------------
(C) Market Feasibility
------------------------------------------------------------------------
    Information on the sales organization and management;
    Nature and extent of market and market area;
    Marketing plans for sale of projected output--principle products and
     by-products;
    Extent of competition including other similar facilities in the
     market area;
    Commitments from customers or brokers--principle products and by-
     products;
    Risks Related to the Advanced Biofuel Industry, including industry
     status.
------------------------------------------------------------------------
(D) Technical Feasibility
------------------------------------------------------------------------
    Suitability of the selected site for the intended use.
    Scale of development for which the process technology has been
     proven (i.e., lab or bench, pilot, demonstration, or semi-work
     scale).
    Specific volume of the process (expressed either as volume of
     feedstock processed--tons per unit of time, or as product--gallons
     per unit of time).
    Any constraints or limitations in the financial projections and any
     other facility or design-related factors that might affect the
     success of the enterprise.
    Identification and estimation of project operation and development
     costs. Specify the level of accuracy of these estimates and the
     assumptions on which these estimates have been based.
    Ability of the proposed system to be commercially replicated.
    Identify how the project assists in meeting or reaching the goals
     identified in the Renewable Fuel Standard established in the Energy
     Independence and Security Act of 2007 and subsequent laws.
    Risks Related to:
        Construction of the Advanced Biofuel Plant;
        Advanced Biofuel Production; and
        Regulation and Governmental Action.
------------------------------------------------------------------------
(E) Financial Feasibility
------------------------------------------------------------------------
    Reliability of the financial projections and assumptions on which
     the financial statements are based including all sources of project
     capital both private or public, such as Federal funds. Three years
     (minimum) projected Balance Sheets, Income and Expense Statements,
     and Cash Flow statements.
    Ability of the business to achieve the projected income and cash
     flow.
    Assessment of the cost accounting system.
    Availability of short-term credit or other means to meet seasonal
     business costs.
    Adequacy of raw materials and supplies.
    Sensitivity Analysis--including feedstock and energy costs, product
     and by-product prices.
    Risks Related to:
        The Project;
        Borrower Financing Plan;
        The operational units; and
        Tax Issues.
------------------------------------------------------------------------
(F) Management Feasibility
------------------------------------------------------------------------
    Identify borrower and/or management's previous experience
     concerning:
        Biofuel production;
        Acquisition of feedstock;
        Marketing and sale of offtake; and
        The receipt of Federal financial assistance, including amount of
         funding, date received, purpose, and outcome.
    Management plan for procurement of feedstock and labor, marketing of
     the offtake, and management succession.
    Risks Related to:
        Borrower as a Company (i.e., Development-Stage); and
        Conflicts of Interest.
------------------------------------------------------------------------
(G) Qualifications
------------------------------------------------------------------------
    A resume or statement of qualifications of the author of the
     feasibility study, including prior experience, should be submitted.
------------------------------------------------------------------------

     (g) Business plan. The lender must submit a business plan that 
includes the information specified in paragraphs (g)(1) through (10) of 
this section. Any or all of this information may be omitted if it is 
included in the feasibility study specified in paragraph (f) of this 
section.
    (1) The borrower's experience;
    (2) The borrower's succession planning addressing both ownership 
and management;
    (3) The names and a description of the relationship of the 
borrower's parent, affiliates, and subsidiaries;
    (4) The borrower's business strategy;
    (5) Possible vendors and models of major system components;
    (6) The availability of the resources (e.g., labor, raw materials, 
supplies) necessary to provide those products and services;
    (7) Site location and its relation to product distribution (e.g., 
rail lines or highways) and any land use or other permits necessary to 
operate the facility;

[[Page 20068]]

    (8) The market for the product and its competition, including any 
and all competitive threats and advantages;
    (9) Projected balance sheets, income and expense statements, and 
cash flow statements for a period of not less than 3 years of 
stabilized operation; and
    (10) A description of the proposed use of funds.
    (h) Technical Assessment. As part of the feasibility study required 
under paragraph (f) of this section, a detailed technical assessment is 
required for each project. The technical assessment must demonstrate 
that the design, procurement, installation, startup, operation and 
maintenance of the project will permit it to operate or perform as 
specified over its useful life in a reliable and a cost effective 
manner, and must identify what the useful life of the project is. The 
technical assessment must also identify all necessary project 
agreements, demonstrate that those agreements will be in place at or 
before the time of loan closing, and demonstrate that necessary project 
equipment and services will be available over the useful life of the 
project. The technical assessment must be based upon verifiable data 
and contain sufficient information and analysis so that a determination 
can be made on the technical feasibility of achieving the levels of 
income or production that are projected in the financial statements. 
All technical information provided must follow the format specified in 
paragraphs (h)(1) through (9) of this section. Supporting information 
may be submitted in other formats. Design drawings and process flow 
charts are required as exhibits. A discussion of each topic identified 
in paragraphs (h)(1) through (9) of this section is not necessary if 
the topic is not applicable to the specific project. Questions 
identified in the Agency's technical review of the project must be 
answered to the Agency's satisfaction before the application will be 
approved. All projects require the services of an independent, third-
party professional engineer.
    (1) Qualifications of project team. The project team will vary 
according to the complexity and scale of the project. The project team 
must have demonstrated expertise in similar advanced biofuel technology 
development, engineering, installation, and maintenance. Authoritative 
evidence that project team service providers have the necessary 
professional credentials or relevant experience to perform the required 
services for the development, construction, and retrofitting, as 
applicable, of technology for producing advanced biofuels must be 
provided. In addition, authoritative evidence that vendors of 
proprietary components can provide necessary equipment and spare parts 
for the biorefinery to operate over its useful life must be provided. 
The application must:
    (i) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the borrower's risk, and a design 
build method, often referred to as turnkey, where the borrower 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developer's 
risk;
    (ii) Discuss the advanced biofuels technology equipment 
manufacturers of major components being considered in terms of the 
length of time in business and the number of units installed at the 
capacity and scale being considered;
    (iii) Discuss the project team members' qualifications for 
engineering, designing, and installing advanced biofuels refineries 
including any relevant certifications by recognized organizations or 
bodies. Provide a list of the same or similar projects designed, 
installed, or supplied and currently operating and with references if 
available; and
    (iv) Describe the advanced biofuels refinery operator's 
qualifications and experience for servicing, operating, and maintaining 
such equipment or projects. Provide a list of the same or similar 
projects designed, installed, or supplied and currently operating, with 
references if available.
    (2) Agreements and permits. All necessary agreements and permits 
required for the project and the status and schedule for securing those 
agreements and permits, including the items specified in paragraphs 
(h)(2)(i) through (vi) of this section, must be identified in the 
application.
    (i) Advanced biofuels refineries must be installed in accordance 
with applicable local, State, and national codes and regulations. 
Identify zoning and code issues, and required permits and the schedule 
for meeting those requirements and securing those permits.
    (ii) Identify licenses where required and the schedule for 
obtaining those licenses.
    (iii) Identify land use agreements required for the project and the 
schedule for securing the agreements and the term of those agreements.
    (iv) Identify any permits or agreements required for solid, liquid, 
and gaseous emissions or effluents and the schedule for securing those 
permits and agreements.
    (v) Identify available component warranties for the specific 
project location and size.
    (vi) Identify all environmental issues, including environmental 
compliance issues, associated with the project.
    (3) Resource assessment. Adequate and appropriate evidence of the 
availability of the feedstocks required for the advanced biofuels 
refinery to operate as designed must be provided in the application. 
Indicate the type and quantity of the feedstock, including storage, 
where applicable, and competing uses for the feedstock. Indicate 
shipping or receiving methods and required infrastructure for shipping, 
and other appropriate transportation mechanisms. For proposed projects 
with an established resource, provide a summary of the resource.
    (4) Design and engineering. Authoritative evidence that the 
advanced biofuels refinery will be designed and engineered so as to 
meet its intended purposes, will ensure public safety, and will comply 
with applicable laws, regulations, agreements, permits, codes, and 
standards must be provided in the application. Projects shall be 
engineered by a qualified entity. Each biorefinery must be engineered 
as a complete, integrated facility. The engineering must be 
comprehensive, including site selection, systems and component 
selection, and systems monitoring equipment. Biorefineries must be 
constructed by a qualified entity.
    (i) The application must include a concise but complete description 
of the project including location of the project; resource 
characteristics, including the kind and amount of feedstocks; 
biorefinery specifications; kind, amount, and quality of the output; 
and monitoring equipment. Address performance on a monthly and annual 
basis. Describe the uses of or the market for the advanced biofuels 
produced by the biorefinery. Discuss the impact of reduced or 
interrupted feedstock availability on the biorefinery's operations.
    (ii) The application must include a description of the project site 
and address issues such as site access, foundations, backup equipment 
when applicable, and the environmental information documents Form RD 
1940-20 and required narrative in the 7 CFR part 1940, subpart G, 
Exhibit H format. Identify any unique construction and installation 
issues.
    (iii) Sites must be controlled by the eligible borrower for at 
least the

[[Page 20069]]

financing term of any associated Federal loans or loan guarantees.
    (5) Project development schedule. Each significant task, its 
beginning and end, and its relationship to the time needed to initiate 
and carry the project through startup and shakedown must be provided in 
the application. Provide a detailed description of the project timeline 
including resource assessment, project and site design, permits and 
agreements, equipment procurement, and project construction from 
excavation through startup and shakedown.
    (6) Equipment procurement. A demonstration that equipment required 
by the biorefinery is available and can be procured and delivered 
within the proposed project development schedule must be provided in 
the application. Biorefineries may be constructed of components 
manufactured in more than one location. Provide a description of any 
unique equipment procurement issues such as scheduling and timing of 
component manufacture and delivery, ordering, warranties, shipping, 
receiving, and on-site storage or inventory.
    (7) Equipment installation. A full description of the management of 
and plan for site development and systems installation, details 
regarding the scheduling of major installation equipment needed for 
project construction, and a description of the startup and shakedown 
specification and process and the conditions required for startup and 
shakedown for each equipment item individually and for the biorefinery 
as a whole must be provided in the application.
    (8) Operations and maintenance. The operations and maintenance 
requirements of the biorefinery necessary for the biorefinery to 
operate as designed over the useful life must be provided in the 
application. The application must also include:
    (i) Information regarding available biorefinery and component 
warranties and availability of spare parts;
    (ii) A description of the routine operations and maintenance 
requirements of the proposed biorefinery, including maintenance 
schedules for the mechanical, piping, and electrical systems and system 
monitoring and control requirements, as well as provision of 
information that supports expected useful life of the biorefinery and 
timing of major component replacement or rebuilds;
    (iii) A discussion of the costs and labor associated with operating 
and maintaining the biorefinery and plans for in-sourcing or 
outsourcing. A description of the opportunities for technology transfer 
for long term project operations and maintenance by a local entity or 
owner/operator; and
    (iv) Provision and discussion of the risk management plan for 
handling large, unanticipated failures of major components.
    (9) Decommissioning. A description of the decommissioning process, 
when the project must be uninstalled or removed. A description of any 
issues, requirements, and costs for removal and disposal of the 
biorefinery.
    (i) Economic Analysis. The feasibility study required under 
paragraph (f) of this section must contain a detailed economic analysis 
of the project. The economic analysis must describe the costs and 
revenues of the proposed project to demonstrate the financial 
performance of the project by:
    (1) Providing a detailed analysis and description of project costs 
including project management, resource assessment, project design, 
project permitting, land agreements, equipment, site preparation, 
systems installation, startup and shakedown, warranties, insurance, 
financing, professional services, and operations and maintenance costs;
    (2) Providing a detailed analysis and description of annual project 
revenues and expenses over the useful life of the project;
    (3) Providing a detailed description of applicable investment 
incentives, productivity incentives, loans, and grants; and
    (4) Identifying any other project authorities and subsidies that 
affect the project.
    (j) Loan Agreement. A proposed loan agreement or a sample loan 
agreement with an attached list of the proposed loan agreement 
provisions as specified in Sec.  4279.161(b)(11).
    (k) Lender certifications. The lender must provide certification in 
accordance with Sec.  4279.161(b)(16). In addition, the lender must 
certify that the project is able to demonstrate technical merit.
    (l) Intergovernmental consultation. Intergovernmental consultation 
comments in accordance with RD Instruction 1940-J and 7 CFR, part 3015, 
subpart V.
    (m) DUNS Number. For borrowers other than individuals, a Dun and 
Bradstreet Universal Numbering System (DUNS) number.
    (n) Bioenergy experience. Identify borrower's, including its 
principals', prior experience in bioenergy projects and the receipt of 
Federal financial assistance, including the amount of funding, date 
received, purpose, and outcome, for such projects.
    (o) Other information. Any other information determined by the 
Agency to be necessary to evaluate the application.


Sec. Sec.  4279.262-4279.264  [Reserved]


Sec.  4279.265  Guarantee application evaluation.

    Instead of evaluating applications using the provisions of Sec.  
4279.165, the Agency will evaluate and award applications according to 
the provisions specified in paragraphs (a) through (h) of this section.
    (a) Application processing. Upon receipt of a complete application, 
the Agency will conduct a review to determine if the borrower, lender, 
and project are eligible; if the project has technical merit as 
determined under paragraph (b) of this section; and if the minimum 
financial metric criteria under paragraph (c) of this section are met.
    (1) If the borrower, lender, or the project is determined to be 
ineligible for any reason, the Agency will inform the lender, in 
writing, of the reasons. No further evaluation of the application will 
occur.
    (2) If the Agency determines it is unable to guarantee the loan, 
the lender will be informed in writing. Such notification will include 
the reasons for denial of the guarantee.
    (b) Technical merit determination. The Agency's determination of a 
project's technical merit will be based on the information in the 
application. Projects determined by the Agency to be without technical 
merit will not be selected for funding.
    (c) Financial metric criteria. The borrower must meet the financial 
metric criteria specified in paragraphs (c)(1) through (3) of this 
section. These financial metric criteria shall be calculated from the 
realistic information in the pro forma statements or borrower financial 
statements, submitted in accordance with Sec.  4279.261(c), of a 
typical operating year after the project is completed and stabilized.
    (1) A debt coverage ratio of 1.0 or higher.
    (2) A debt-to-tangible net worth ratio of 4:1 or lower for startup 
businesses and of 9:1 or lower for existing businesses.
    (3) A discounted loan-to-value ratio of no more than 1.0.
    (d) Scoring applications. The Agency will score each complete and 
eligible application it receives on or before June 1 in the fiscal year 
in which it was received. The Agency will score each eligible 
application that meets the minimum requirements for financial and 
technical feasibility using the

[[Page 20070]]

evaluation criteria identified below. A maximum of 100 points is 
possible.
    (1) Whether the borrower has established a market for the advanced 
biofuel and the by-products produced. A maximum of 5 points can be 
awarded. Points to be awarded will be determined as follows:
    (i) If the business has less than or equal to a 60 percent 
commitment for feedstocks, marketing agreements for the advanced 
biofuel, and the biobased by-products produced, 0 points will be 
awarded.
    (ii) If the business has a greater than 60 percent commitment for 
feedstocks, marketing agreements for the advanced biofuel, and the 
biobased by-products produced, 5 points will be awarded.
    (2) Whether the area in which the borrower proposes to place the 
biorefinery, defined as the area that will supply the feedstock to the 
proposed biorefinery, has other similar advanced biofuel facilities. A 
maximum of 5 points can be awarded. Points to be awarded will be 
determined as follows:
    (i) If the area that will supply the feedstock to the proposed 
biorefinery does not have any other advanced biofuel biorefineries, 5 
points will be awarded.
    (ii) If there are other advanced biofuel biorefineries located 
within the area that will supply the feedstock to the proposed 
biorefinery, 0 points will be awarded.
    (3) Whether the borrower is proposing to use a feedstock not 
previously used in the production of advanced biofuels. A maximum of 15 
points can be awarded. Points to be awarded will be determined as 
follows:
    (i) If the borrower proposes to use a feedstock previously used in 
the production of advanced biofuels in a commercial facility, 0 points 
will be awarded.
    (ii) If the borrower proposes to use a feedstock not previously 
used in production of advanced biofuels in a commercial facility, 15 
points will be awarded.
    (4) Whether the borrower is proposing to work with producer 
associations or cooperatives. A maximum of 5 points can be awarded. 
Five (5) points will be awarded if all of the conditions specified in 
paragraphs (d)(4)(i) through (iii) of this section are met. If any one 
of these conditions is not met, 0 points will be awarded. For example, 
consider a proposed biorefinery that will purchase $1,000,000 of 
feedstock and produce $5,000,000 worth of biofuel and $2,000,000 worth 
of biobased by-products. In order to receive the 5 points under this 
criterion, at least $500,000 worth of feedstock purchases must be from 
producer associations or cooperatives, at least $2,500,000 worth of 
biofuel must be sold to producer associations or cooperatives, and at 
least $1,000,000 worth of biobased by-products must be sold to producer 
associations or cooperatives.
    (i) At least 60 percent of the dollar value of feedstock to be used 
by the proposed biorefinery will be supplied by producer associations 
and cooperatives;
    (ii) At least 60 percent of the dollar value of the advanced 
biofuel to be produced by the proposed biorefinery will be sold to 
producer associations and cooperatives; and
    (iii) At least 60 percent of the dollar value of the advanced 
biobased by-products to be produced by the proposed biorefinery will be 
sold to producer associations and cooperatives.
    (5) The level of financial participation by the borrower, including 
support from non-Federal and other private sources. Other Direct 
Federal funding (i.e., direct loans and grants) will not be considered 
as part of the borrower's cash equity participation. A maximum of 20 
points can be awarded. Points to be awarded will be determined as 
follows:
    (i) If the borrower's cash equity injection plus other resources 
results in a debt-to-tangible net worth ratio equal to or less than 3 
to 1, but greater than 2.5 to 1, 10 points will be awarded.
    (ii) If the borrower's cash equity injection plus other resources 
results in a debt-to-tangible net worth ratio equal to or less than 2.5 
to 1, 20 points will be awarded.
    (iii) If a project uses other Federal direct funding, 10 points 
will be deducted.
    (6) Whether the borrower has established that the adoption of the 
process proposed in the application will have a positive effect on 
three impact areas: resource conservation, public health, and the 
environment. A maximum of 5 points can be awarded. Based on what the 
borrower has provided in either the application or the feasibility 
study, points to be awarded will be determined as follows:
    (i) If process adoption will have a positive impact on any one of 
the three impact areas (resource conservation, public health, or the 
environment), 1 point will be awarded.
    (ii) If process adoption will have a positive impact on two of the 
three impact areas, 3 points will be awarded.
    (iii) If process adoption will have a positive impact on all three 
impact areas, 5 points will be awarded.
    (7) Whether the borrower can establish that, if adopted, the 
biofuels production technology proposed in the application will not 
have any economically significant negative impacts on existing 
manufacturing plants or other facilities that use similar feedstocks. A 
maximum of 5 points can be awarded. Points to be awarded will be 
determined as follows:
    (i) If the borrower has not established, through an independent 
third party (i.e., feasibility study), that the biofuels production 
technology proposed in the application, if adopted, will not have any 
economically significant negative impacts on existing manufacturing 
plants or other facilities that use similar feedstocks, 0 points will 
be awarded.
    (ii) If the borrower has established, through an independent third 
party (i.e., feasibility study), that the biofuels production 
technology proposed in the application, if adopted, will not have any 
economically significant negative impacts on existing manufacturing 
plants or other facilities that use similar feedstocks, 5 points will 
be awarded.
    (8) The potential for rural economic development. If the business 
creates jobs with an average wage that exceeds both the State and 
County median household wages where the biorefinery will be located, 5 
points will be awarded.
    (9) The level of local ownership of the biorefinery proposed in the 
application. A maximum of 15 points can be awarded. Points to be 
awarded will be determined as follows:
    (i) If more than 20 but less than or equal to 50 percent of the 
biorefinery's owners are local owners, 9 points will be awarded.
    (ii) If more than 50 percent of the biorefinery's owners are local 
owners, 15 points will be awarded.
    (10) Whether the project can be replicated. A maximum of 5 points 
can be awarded. Points to be awarded will be determined as follows:
    (i) If the project can be commercially replicated regionally (e.g., 
Northeast, Southwest, etc.), 2 points will be awarded.
    (ii) If the project can be commercially replicated nationally, up 
to 5 points will be awarded.
    (11) If the project uses a particular technology, system, or 
process that is not currently operating in the advanced biofuel market 
as of October 1 of the fiscal year for which the funding is available, 
15 points will be awarded.
    (12) If the project proposes to use a feedstock that can be used 
for human or animal consumption, 5 points will be deducted from the 
score.
    (e) Ranking of applications. The Agency will rank all scored 
applications to create a priority list of scored applications for that 
program. Unless

[[Page 20071]]

otherwise specified in a notice published in the Federal Register, the 
Agency will rank applications on or before May 31 for complete and 
eligible applications received by March 1 and on or before August 31 
for complete and eligible applications received on or before June 1.
    (1) All applications that are ranked in a given fiscal year will be 
considered for selection for funding for that entire fiscal year.
    (2) When an application scored in first set of applications is 
carried forward into the second set of applications, it will be 
competed against all of the applications in the second set using its 
score from the first set of applications.
    (f) Selection of applications for funding. Using the priority list 
created under paragraph (e) of this section, the Agency will select 
applications for funding based on the criteria specified in paragraphs 
(f)(1) through (3) of this section. The Agency will notify, in writing, 
lenders whose applications have been selected for funding.
    (1) Ranking. The Agency will consider the score an application has 
received compared to the scores of other applications in the priority 
list, with higher scoring applications receiving first consideration 
for funding. A minimum score of 55 points is required in order to be 
considered for a guarantee.
    (2) Availability of budgetary authority. The Agency will consider 
the size of the request relative to the budgetary authority that 
remains available to the program during the fiscal year.
    (i) If there is insufficient budgetary authority during a 
particular funding period to select a higher scoring application, the 
Agency may elect to select the next highest scoring application for 
further processing. Before this occurs, the Agency will provide the 
borrower of the higher scoring application the opportunity to reduce 
the amount of its request to the amount of budgetary authority 
available. If the borrower agrees to lower its request, it must certify 
that the purposes of the project can be met, and the Agency must 
determine the project is financially feasible at the lower amount.
    (ii) If the amount of funding required is greater than 25 percent 
of the program's outstanding budgetary authority, the Agency may elect 
to select the next highest scoring application for further processing, 
provided the higher scoring borrower is notified of this action and 
given an opportunity to revise their application and resubmit it.
    (3) Availability of other funding sources. If other financial 
assistance is needed for the project, the Agency will consider the 
availability of other funding sources. If the lender cannot demonstrate 
that funds from these sources are available at the time of selecting 
applications for funding or potential funding, the Agency may instead 
select the next highest scoring application for further processing 
ahead of the higher scoring application.
    (g) Ranked applications not funded. A ranked application that is 
not funded in the fiscal year in which it was submitted will not be 
carried forward into the next fiscal year. The Agency will notify the 
lender in writing. If an application has been selected for funding, but 
has not been funded because additional information is needed, the 
Agency will notify the lender of what information is needed, including 
a timeframe for the lender to provide the information. If the lender 
does not provide the information within the specified timeframe, the 
Agency will remove the application from further consideration and will 
so notify the lender.
    (h) Wage rates. As a condition of receiving a loan guaranteed under 
this subpart, each borrower shall ensure that all laborers and 
mechanics employed by contractors or subcontractors in the performance 
of construction work financed in whole or in part with guaranteed loan 
funds under this subpart shall be paid wages at rates not less than 
those prevailing on similar construction in the locality as determined 
by the Secretary of Labor in accordance with sections 3141 through 
3144, 3146, and 3147 of title 40, U.S.C. Awards under this subpart are 
further subject to the relevant regulations contained in title 29 of 
the Code of Federal Regulations.


Sec. Sec.  4279.266-4279.279   [Reserved]


Sec.  4279.280  Changes in borrowers.

    All changes in borrowers must be in accordance with Sec.  4279.180, 
but the eligibility requirements of this program apply.


Sec.  4279.281  Conditions precedent to issuance of loan note 
guarantee.

    The loan note guarantee will not be issued until the lender 
certifies to the conditions identified in Sec.  4279.181(a) through (o) 
and paragraphs (a) through (g) of this section. If the lender is unable 
to provide any of the certifications required under this section, the 
lender must provide an explanation satisfactory to the Agency as to why 
the lender is unable to provide the certification.
    (a) For loans exceeding $150,000, the lender has certified its 
compliance with the Anti-Lobby Act (18 U.S.C. 1913). Also, if any funds 
have been, or will be, paid to any person for influencing or attempting 
to influence an officer or employee of any agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a 
Member of Congress in connection with this commitment providing for the 
United States to guarantee a loan, the lender shall completely disclose 
such lobbying activities in accordance with 31 U.S.C. 1352.
    (b) Where applicable, the lender must certify that the borrower has 
obtained:
    (1) A legal opinion relative to the title to rights-of-way and 
easements. Lenders are responsible for ensuring that borrowers have 
obtained valid, continuous, and adequate rights-of-way and easements 
needed for the construction, operation and maintenance of a facility.
    (2) A title opinion or title insurance showing ownership of the 
land and all mortgages or other lien defects, restriction or 
encumbrances, if any. It is the responsibility of the lender to ensure 
that the borrower has obtained and recorded such releases, consents, or 
subordinations to such property rights from holders of outstanding 
liens or other instruments as may be necessary for the construction, 
operation and maintenance of the facility and to provide the required 
security. For example, when a site is for major structures for utility-
type facilities (such as a gas distribution system) and the lender and 
borrower are able to obtain only a right-of-way or easement on such 
site rather than a fee simple title, such a title opinion must be 
requested.
    (c) The minimum financial criteria, including those financial 
criteria contained in the Conditional Commitment, have been maintained 
through the issuance of the loan note guarantee. Failure to maintain 
these financial criteria shall result in an ineligible application.
    (d) Each borrower shall certify to the lender that all laborers and 
mechanics employed by contractors or subcontractors in the performance 
of construction work financed in whole or in part with guaranteed loan 
funds under this subpart shall be paid wages at rates not less than 
those prevailing on similar construction in the locality as determined 
by the Secretary of Labor in accordance with sections 3141 through 
3144, 3146, and 3147 of title 40 U.S.C. Awards under this subpart are 
further subject to the relevant regulations contained in title 29 of 
the Code of Federal Regulations.
    (e) The lender certifies that it has reviewed all contract 
documents and verified compliance with Sections 3141

[[Page 20072]]

through 3144, 3146, and 3147 of title 40 U.S.C., and title 29 of the 
Code of Federal Regulations. The lender will certify the same process 
will be completed for all future contracts and any changes to existing 
contracts.
    (f) The lender certifies that the proposed facility complies with 
all Federal, State, and local laws and regulatory rules that are in 
existence and that affect the project, the borrower, or lender 
activities.
    (g) The lender will notify the Agency in writing whenever there has 
been a change in the classification of a loan within 15 calendar days 
of such change.


Sec. Sec.  4279.282-4279.289   [Reserved]


Sec.  4279.290  Requirements after project construction.

    Once the project has been constructed, the lender must:
    (a) Provide the Agency annual reports from the borrower commencing 
the first full calendar year following the year in which project 
construction was completed and continuing for the life of the 
guaranteed loan. The borrower's reports will include, but not be 
limited to, the information specified in the following paragraphs, as 
applicable.
    (1) The actual amount of advanced biofuels produced to assess 
whether project goals are being met.
    (2) If applicable, documentation that identified health and/or 
sanitation problems have been solved.
    (3) A summary of the cost of operating and maintaining the 
facility.
    (4) Description of any maintenance or operational problems 
associated with the facility.
    (5) Certification that the project is and has been in compliance 
with all applicable State and Federal environmental laws and 
regulations.
    (6) The number of jobs created.
    (7) A description of the status of the project's feedstock 
including, but not limited to, the feedstock being used, outstanding 
feedstock contracts, feedstock changes and interruptions, and quality 
of the feedstock;
    (8) The results of the annual inspections conducted under paragraph 
(b) of this section; and
    (b) For the life of the guaranteed loan, conduct annual 
inspections.
    Sec. Sec.  4279.291-4279.300 [Reserved]

PART 4287--SERVICING

    3. The authority citation for part 4287 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989.

    4. Part 4287 is amended by adding a new subpart D to read as 
follows:
Subpart D--Servicing Biorefinery Assistance Guaranteed Loans
Sec.
4287.301 Introduction.
4287.302 Definitions.
4287.303 Exception authority.
4287.304-4287.305 [Reserved]
4287.306 Appeals.
4287.307 Servicing.
4287.308-4287.400 [Reserved]

Subpart D--Servicing Biorefinery Assistance Guaranteed Loans


Sec.  4287.301  Introduction.

    (a) This subpart supplements part 4279, subparts A and C of this 
chapter by providing additional requirements and instructions for 
servicing and liquidating all Biorefinery Assistance Guaranteed Loans.
    (b) The lender will be responsible for servicing the entire loan 
and will remain mortgagee and secured party of record notwithstanding 
the fact that another party may hold a portion of the loan. The entire 
loan will be secured by the same security with equal lien priority for 
the guaranteed and unguaranteed portions of the loan. The unguaranteed 
portion of a loan will neither be paid first nor given any preference 
or priority over the guaranteed portion of the loan.
    (c) Copies of all forms, regulations, and Instructions referenced 
in this subpart are available in any Agency office. Whenever a form is 
designated in this subpart, that designation includes predecessor and 
successor forms, if applicable, as specified by the field or National 
Office.


Sec.  4287.302  Definitions.

    The definitions and abbreviations contained in Sec.  4279.2 subpart 
A and in Sec.  4279.202 of subpart C of part 4279 of this chapter apply 
to this subpart.


Sec.  4287.303  Exception authority.

    Section 4279.15 of subpart A of part 4279 of this chapter applies 
to this subpart.


Sec. Sec.  4287.304-4287.305  [Reserved]


Sec.  4287.306  Appeals.

    Section 4279.16 of subpart A of part 4279 of this chapter applies 
to this subpart.


Sec.  4287.307  Servicing.

    Except as specified in paragraphs (a) through (k) of this section, 
all loans guaranteed under this subpart shall comply with the 
provisions found in Sec. Sec.  4287.101 through 4287.199 of this 
chapter. If the Agency determines that the lender is not in compliance 
with its servicing responsibilities, the Agency reserves the right to 
take any action the Agency determines necessary to protect the Agency's 
interests with respect to the loan. If the Agency exercises this right, 
the lender must cooperate with the Agency. Any cost to the Agency 
associated with such action will be assessed against the lender.
    (a) Periodic reports. Each lender shall submit periodic reports, on 
a quarterly basis, unless otherwise determined by the Agency to meet 
the financial interests of the United States, regarding the condition 
of its Agency guaranteed loan portfolio (including borrower status and 
loan classification) and any material adverse change in the general 
financial condition of the borrower since the last periodic report was 
submitted.
    (b) Default reports. Lenders shall submit monthly default reports, 
including borrower payment history, for each loan in monetary default 
using a form approved by the Agency.
    (c) Financial reports. In addition to complying with the financial 
reports specified in Sec.  4287.107(d),
    (1) The financial reports required under 4287.107(d) may be 
specified in either the loan agreement or the Conditional Commitment;
    (2) The lender must submit to the Agency quarterly financial 
statements within 45 days of the end of each quarter; and
    (3) The annual financial statements required under Sec.  
4287.107(d)(1)(ii) must be audited financial statements.
    (d) Additional loans. Instead of complying with the additional 
expenditures provisions specified in Sec.  4287.107(e), the lender may 
make additional expenditures or new loans to a borrower with an 
outstanding loan guaranteed under this Notice only with prior written 
Agency approval. The Agency will only approve additional expenditures 
or new loans to the extent such actions where the expenditure or loan 
will not violate one or more of the loan covenants of the borrower's 
loan agreement. In all instances, the lender must notify the Agency 
when they make any additional expenditures or new loans. In all cases, 
any additional expenditure or loan made by the lender must be junior in 
priority to the loan guaranteed hereunder.
    (e) Collateral inspection and release. In lieu of complying with 
Sec.  4287.113, lenders must comply with the provisions of this 
paragraph. The lender must inspect the collateral as often as necessary 
to properly service the loan. The Agency will require prior approval of 
the release of collateral, except in those instances where the proceeds 
are used to pay down debt in order of lien priority, or to acquire 
replacement

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equipment, or where the release of collateral is made under the 
abundance of collateral provision of the applicable security agreement. 
Appraisals on the collateral being released will be required on all 
transactions exceeding $250,000 and will be at the expense of the 
borrower. The appraisal must meet the requirements of Sec.  4279.244. 
The sale or release of collateral must be based on an arm's length 
transaction, unless otherwise approved by the Agency in writing.
    (1) Lenders may, over the life of the guaranteed loan, release 
collateral with a cumulative value of up to 20 percent of the original 
loan amount without Agency concurrence if the proceeds generated are 
used to pay down secured debt in order of lien priority or to buy 
replacement collateral.
    (2) Release of collateral with a cumulative value in excess of 20 
percent of the original loan or when the proceeds will not be used to 
pay down secured debt or to buy replacement collateral, must be 
requested, in writing, by the lender and concurred by the Agency, in 
writing, in advance of the release. A written evaluation will be 
completed by the lender to justify the release.
    (3) Lenders may not release collateral with a value of more than 10 
percent of the original loan amount at any one time and within any one 
calendar year without Agency concurrence.
    (4) Any release of collateral must not adversely affect the 
project's operation or financial condition.
    (f) Transfers and assumptions. Transfers and assumptions shall 
comply with Sec.  4287.134 and with paragraphs (f)(1) through (3) of 
this section.
    (1) The Agency may charge the lender a nonrefundable transfer fee 
at the time of a transfer application. The Agency will set the amount 
of the transfer fee in an annual notice of funds availability.
    (2) Assumption shall be deemed to occur in the event of a change in 
the control of the borrower. For purposes of the loan, change of 
control means the merger, sale of all or substantially all of the 
assets of the borrower, or the sale of more than 25 percent of the 
stock or other equity interest of either the borrower or its corporate 
parent.
    (3) The Agency will not approve any change in terms that results in 
an increase in the cost of the loan guarantee, unless the Agency can 
secure any additional budget authority that would be required.
    (g) Substitution of lender after issuance of the Loan Note 
Guarantee. All substitutions of lenders must comply with Sec.  4287.135 
except that, instead of approving a new lender as a substitute lender 
using the provisions of Sec.  4287.135(a), the Agency may approve the 
substitution of a new lender if the proposed substitute lender:
    (1) Is an eligible lender in accordance with Sec.  4279.202(b);
    (2) Is able to service the loan in accordance with the original 
loan documents; and
    (3) Acquires title to the unguaranteed portion of the loan held by 
the original lender and assumes all original loan requirements, 
including liabilities and servicing responsibilities.
    (h) Default by borrower. In addition to complying with Sec.  
4287.145, if a loan goes into default, the lender must provide the 
notification required under Sec.  4287.145(a) to the Agency within 15 
calendar days of when a borrower is 30 days past due on a payment or is 
otherwise in default of the Loan Agreement.
    (i) Protective advances. All protective advances made by the lender 
must comply with Sec.  4287.156 and the provisions of paragraphs (i)(1) 
and (2) of this section.
    (1) Instead of the $5,000 specified in Sec.  4279.156(c), Agency 
written authorization is required when cumulative protective advances 
exceed $100,000, unless otherwise specified by the Agency at a lesser 
amount.
    (2) The lender must obtain written Agency approval for any 
protective advance that will singularly or cumulatively amount to more 
than $100,000 or 10% of the guaranteed loan, whichever is less.
    (j) Determination of loss and payment. In addition to complying 
with Sec.  4279.158, if a lender receives a final loss payment, the 
lender must submit to the Agency an annual report on its collection 
activities for each unsatisfied account for 3 years following payment 
of the final loss claim.


Sec. Sec.  4287.308-4287.400  [Reserved]

    Dated: April 5, 2010.
Judith A. Canales,
Administrator, Rural Business-Cooperative Service.
[FR Doc. 2010-8274 Filed 4-15-10; 8:45 am]
BILLING CODE 3410-XY-P