[Federal Register Volume 76, Number 30 (Monday, February 14, 2011)]
[Rules and Regulations]
[Pages 8404-8477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2473]



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Vol. 76

Monday,

No. 30

February 14, 2011

Part II





Department of Agriculture





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Rural Business-Cooperative Service



Rural Utilities Service



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7 CFR Parts 4279 and 4287



Biorefinery Assistance Guaranteed Loans; Final Rule

  Federal Register / Vol. 76 , No. 30 / Monday, February 14, 2011 / 
Rules and Regulations  

[[Page 8404]]


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DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Parts 4279 and 4287

RIN 0570-AA73


Biorefinery Assistance Guaranteed Loans

AGENCY: Rural Business-Cooperative Service and Rural Utilities Service, 
USDA.

ACTION: Interim rule with request for comments.

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SUMMARY: This interim rule establishes a guaranteed loan program 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: This interim rule is effective March 16, 2011. Comments must be 
received on or before April 15, 2011.

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: Kelley Oehler, Energy Branch, 
Biorefinery Assistance Program, U.S. Department of Agriculture, 1400 
Independence Avenue, SW., Stop 3225, Washington, DC 20250-3201; 
telephone (202) 720-6819. E-mail: [email protected].

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This interim 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 
identified potential benefits and costs of the Biorefinery Assistance 
Guaranteed Loan 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 Biorefinery Assistance Guaranteed Loan 
Program were qualitatively assessed.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act 1995 (UMRA), 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 the 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 interim 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 Section 9003 of the Farm 
Security and Rural Investment Act of 2002 (FSRIA) (as amended by 
Section 9001 of the Food, Conservation, and Energy Act of 2008 (2008 
Farm Bill)) has been operating 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 has prepared a programmatic environmental assessment 
(PEA), pursuant to 7 CFR part 1940, subpart G, analyzing the 
environmental effects to air, water, and biotic resources; land use; 
historic and cultural resources; and greenhouse gas emissions affected 
by the Biorefinery Assistance Guaranteed Loan Program proposed rule. 
The purpose of the PEA is to assess the overall environmental impacts 
of the programs related to the Congressional goal of advancing biofuels 
production for the purposes of energy independence and greenhouse gas 
emission reductions. The impact analyses are national in scope, but 
draw upon site-by-site analysis for each application to the program. 
Site-specific NEPA documents prepared for those facilities funded under 
Sections 9003 and 9004 of the FSRIA in FY 2008 and/or 2009 were 
utilized, as well, to forecast likely impacts under the interim rule. 
The draft PEA was made available to the public for comment on the USDA 
Rural Business-Cooperative Service's Web site on May 3, 2010. No 
comments were received on the draft PEA, and the Agency is preparing to 
publish a Finding of No Significant Impact (FONSI) for the program.

Executive Order 12988, Civil Justice Reform

    This interim 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

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court challenging action taken under this rule unless those regulations 
specifically allow bringing suit at an earlier time.

Executive Order 13132, Federalism

    It has been determined, under Executive Order 13132, Federalism, 
that this interim rule does not have sufficient federalism implications 
to warrant the preparation of a Federalism Assessment. The provisions 
contained in the 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. 601-612) (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 Program loan to any one borrower 
is estimated to be less than 0.1 percent of the estimated cost of the 
average construction or 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 interim rule 
meets the requirements for Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or 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 finds that this rule will 
not 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 
and on the Internet at http://www.rurdev.usda.gov/regs, and in 7 CFR 
part 3015, subpart V.

Executive Order 13175

    United States Department of Agriculture (USDA) will undertake, 
within 6 months after this rule becomes effective, a series of 
regulation Tribal consultation sessions to gain input by elected Tribal 
officials or their designees concerning the impact of this rule on 
Tribal governments, communities, and individuals. These sessions will 
establish a baseline of consultation for future actions, should any be 
necessary, regarding this rule. Reports from these sessions for 
consultation will be made part of the USDA annual reporting on Tribal 
Consultation and Collaboration. USDA will respond in a timely and 
meaningful manner to all Tribal government requests for consultation 
concerning this rule and will provide additional venues, such as 
webinars and teleconferences, to periodically host collaborative 
conversations with Tribal leaders and their representatives concerning 
ways to improve this rule in Indian country.
    The policies contained in this rule would not have Tribal 
implications that preempt Tribal law.

Programs Affected

    The Biorefinery Assistance Guaranteed Loan Program is listed in the 
Catalog of Federal Domestic Assistance Program under Number 10.865.

Paperwork Reduction Act

    The information collection requirements contained in the Notice of 
Funding Availability for the Section 9003 Biorefinery Assistance 
Guaranteed Loan Program published on November 20, 2008, were approved 
by the Office of Management and Budget (OMB) under emergency clearance 
procedures and assigned OMB Control Number 0570-0055. In accordance 
with the Paperwork Reduction Act of 1995, the Agency is now seeking 
standard OMB approval of the reporting requirements contained in this 
interim rule. In the publication of the proposed rule on April 16, 
2010, the Agency solicited comments on the estimated burden. The Agency 
received one comment in response to this solicitation. This information 
collection requirement will not become effective until approved by OMB. 
Upon approval of this information collection, the Agency will publish a 
rule in the Federal Register.
    Title: Biorefinery Assistance Guaranteed Loan Program.
    OMB Number: 0570-NEW.
    Type of Request: New collection.
    Abstract: The collection of information is vital for 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., are 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 estimated information collection burden hours has not changed 
from the proposed rule, remaining at 2,920 hours.
    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

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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 on Respondents: 2,920.

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 Farm Security and Rural Investment Act of 2002 
(FSRIA) (as amended by Section 9001 of the Food, Conservation, and 
Energy Act of 2008 (2008 Farm Bill)) provides for financial assistance 
in the form of grants and loan guarantees to assist in the development 
of new and emerging technologies for the development of advanced 
biofuels. At this time, Congress has not appropriated any discretionary 
funding, which would be necessary to fund program grants. Therefore, 
the interim rule only addresses loan guarantees. If and when funds for 
grants are appropriated and received by the Agency, it will be 
necessary for the Agency to promulgate a separate regulation for 
program grants.
    The interim rule establishes the Biorefinery Assistance Guaranteed 
Loan Program to provide loan guarantees for the development, 
construction, or 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.
    On April 16, 2010 [75 FR 20044], the Agency published a proposed 
rule for the Biorefinery Assistance Guaranteed Loan Program. Comments 
were requested on the proposed rule, which are summarized in Section 
III of this preamble. Most of the proposed rule's provisions have been 
carried forward into 7 CFR part 4279, subpart C, and 7 CFR part 4287, 
subpart D, although there have been several significant changes. 
Changes to the proposed rule are summarized in Section II of this 
preamble.
    Interim rule. USDA Rural Development is issuing this regulation as 
an interim rule, effective March 16, 2011. All provisions of this 
regulation are adopted on an interim final basis, are subject to a 60-
day comment period, and will remain in effect until the Agency adopts 
the final rule.

II. Summary of Changes to the Proposed Rule

    This section presents changes from the April 16, 2010, proposed 
rule. Most of the changes were the result of the Agency's consideration 
of public comments on the proposed rule. Some changes, however, are 
being made to clarify proposed provisions. Unless otherwise indicated, 
rule citations refer to those in the interim rule.

A. Highlighted Changes

    The following highlight significant changes to the rule:
     Revised the maximum percent guarantee provisions, 
including adding provisions to allow for a 90 percent guarantee for 
loan amounts of $125 million or less under certain conditions.
     Added refinancing as an eligible project purpose under 
certain conditions.
     Removed location in a rural area as a requirement for 
project eligibility; however, it is included in a scoring criterion in 
order to receive points for that criterion.
     Removed the citizenship requirement for borrowers.
     Revised the minimum retention requirement to 7.5 percent 
of total loan amount.

B. Section Specific Changes

1. Definitions
    A number of definitions were added, revised, or removed.
    The Agency added one definition:
    ``Biobased product'' was added in order to further clarify the 
biorefinery definition.
    The Agency revised several definitions as follows:
     Business plan. The Agency clarified the wording of this 
definition.
     Existing businesses. The Agency clarified the wording of 
this definition.
     Farm cooperative. The Agency revised the definition to be 
generally consistent with the definition being used in the value-added 
producer grant program.
     Feasibility study. The Agency replaced ``capabilities'' 
with ``feasibility'' to clarify the definition.
     Local owner. The Agency revised the rule to remove the 
reference to the feedstock supply area and now defines local owner as 
``an individual who owns any portion of an eligible advanced biofuel 
biorefinery and whose primary residence is located within a certain 
distance from the biorefinery as specified by the Agency in a Notice 
published in the Federal Register.''
     Material adverse change. The Agency revised the definition 
by replacing ``might'' with ``would likely'' jeopardize loan 
performance.
     Project. The Agency corrected the term ``biobased 
byproduct'' to ``biobased product.''
     Technical and economic potential. The Agency added to the 
definition the phrase ``successfully completed'' when referring to the 
12-month operating cycle.
    Lastly, the Agency revised several definitions associated with 
capital ratios to refer to the Federal Deposit Insurance Corporation 
regulations in general.
    The Agency removed several definitions--Agency, byproduct, future 
recovery, immediate family, regulated or supervised lender, and surety.
     The term ``Agency'' was removed from the definitions 
because it is defined in Sec.  4279.2 and does not need to be repeated 
in the interim rule.
     The term ``future recovery'' was removed because the term 
is not used in the interim rule.
     The term ``immediate family'' was removed because the term 
was only used for the citizenship requirement, which has been removed. 
Thus, the term is no longer used in the rule.
     The term ``regulated or supervised lender'' was removed 
because of the revision made to identify eligible lenders.

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     The specific definition for the term ``surety'' was 
removed; the rule now refers to how the term is commonly used in the 
industry.
2. Lender Eligibility Requirements
    The Agency modified Sec.  4279.202(c)(1) to make the definition of 
eligible lender similar, but not identical, to the definition of 
traditional lender in the Business and Industry Guaranteed Loan 
Program. The Agency notes that, under the interim rule, savings and 
loan associations, mortgage lenders, and other lenders (those that are 
not regulated lenders) are not eligible to participate in this program.
    The Agency modified the rule to require that the lender meet 
acceptable levels of capital at the time of application and at the time 
of issuance of loan note guarantee, thereby removing the requirement of 
maintaining acceptable capital levels at all times.
    The Agency also clarified that, if the information to calculate 
these levels of capital is not identified in the Call Reports or Thrift 
Financial Reports, the lender will be required to calculate these 
levels and provide them to the Agency.
    Lastly, the Agency added a provision addressing lenders that are 
under a cease and desist order from a Federal agency. In such 
instances, the Agency will evaluate the lender's eligibility on a case-
by-case basis given the risk of loss posed by the cease and desist 
order.
3. Independent Credit Risk Analysis
    The Agency revised ``$100,000'' to ``$125,000,000.''
4. Conditions of Guarantee
    The Agency revised the rule to indicate that both the guaranteed 
and unguaranteed portions of the entire loan must be secured by a first 
lien and that the Agency may consider a subordinate lien position on 
inventory and accounts receivable for working capital loans if certain 
conditions are met.
    The Agency also clarified that the lender remains bound by all 
obligations under the loan note guarantee, Lender's Agreement, and 
Agency program regulations even if all or a portion of the loan note 
guarantee has been sold to a holder.
    Lastly, the Agency incorporated provisions associated with rights 
and liabilities specific to this program, rather than relying on the 
corresponding provisions in the Business and Industry Guaranteed Loan 
program found at Sec.  4279.72(b), to clarify that having a holder 
purchase part of the loan note guarantee does not increase the coverage 
provided to the lender under the loan note guarantee.
5. Sale or Assignment
    The Agency revised the sale or assignment provisions to rely solely 
of the sale or assignment provisions of the Business and Industry 
Guaranteed Loan program found at Sec.  4279.75.
6. Minimum Retention
    The Agency revised the minimum retention provisions to rely on the 
minimum retention provisions of the Business and Industry Guaranteed 
Loan program found at Sec.  4279.77, except that the lender is required 
to hold 7.5 percent (rather than 5 percent) of the total loan amount in 
its own portfolio.
7. Ineligible Purposes
    As proposed, projects in excess of $1 million that would likely 
result in the transfer of jobs from one area to another and increase 
direct employment by more than 50 employees and projects in excess of 
$1 million that would increase direct employment by more than 50 
employees, if the project would result in an increase in the production 
of goods for which there is not sufficient demand, or if the 
availability of services or facilities is insufficient to meet the 
needs of the business, would have been ineligible purposes, as they are 
in the Business and Industry Guaranteed Loan program. The Agency has 
removed these types of projects as ineligible; that is, such projects 
would be eligible for a guaranteed loan under this program. The Agency 
has determined that to continue excluding such projects is unnecessary 
for this program because the program's primary focus is on the 
development of renewable energy technologies and not on job creation.
8. Fees
    The Agency removed the cross-reference to the Business and Industry 
Guaranteed Loan program and replaced it with provisions specific to 
this program. The only substantive change is the elimination of 
reference to the option to lower the guarantee fee to 1 percent, which 
was never intended to be part of this program.
    The Agency has added provisions that allow it to adjust the 
guarantee fee and the annual renewal fee through the publication of a 
Federal Register notice.
    The Agency has added a 3 percent guarantee fee for loans with a 90 
percent guarantee.
9. Borrower Eligibility
    The Agency removed the citizenship requirement. In addition, the 
Agency clarified that the borrower must have or obtain legal authority 
prior to loan closing.
10. Project Eligibility
    Changes made to project eligibility include:
     Replacing the requirement that the project must be located 
in a rural area with the requirement that the project must be located 
in a State. Note that the project must be located in a rural area to 
receive points under the ``potential for rural economic development'' 
scoring criterion.
     Clarifying that the project must use an eligible feedstock 
for the production of advanced biofuels and biobased products (at 
proposal, only advanced biofuels was identified) to be consistent with 
the authorizing legislation.
     Revising the proposed requirement that ``more than 70 
percent of the revenue generated by the biorefinery must be from the 
sale of advanced biofuel'' to now require that the majority of the 
production generated by the biorefinery must be advanced biofuels. If 
the biorefinery produces biobased products and, if applicable, 
byproduct(s) with an established BTU content, majority biofuel 
production will be based on BTU content of the advanced biofuel, the 
biobased product, and byproduct. Alternatively, if there is no 
established BTU value for the biobased product or the byproduct 
produced, then majority biofuel production would be based on output 
volume of the advanced biofuel, the biobased product, and, if 
applicable, the byproduct.
     Adding a provision that the advanced biofuel must be sold 
as a biofuel unless otherwise approved by the Agency and determined to 
be in the best financial interests of the government.
     Revising the rule to include any organic matter that is 
available on a renewable or recurring basis from non-Federal land or 
eligible tribal land, including municipal solid waste consisting of 
renewable biomass, biosolids, treated sewage sludge, and byproducts of 
the pulp and paper industry, as eligible feedstock.
     Clarifying that an advanced biofuel that is converted to 
another form of energy for sale will still be considered an advanced 
biofuel.
11. Guaranteed Loan Funding
    The Agency has made several changes in this section, including:
     Clarifying that the borrower needs to provide the 
remaining 20 percent from other non-Federal sources to complete the 
project.

[[Page 8408]]

     Revising the loan guarantee amounts associated with the 
maximum percent guarantees;
     Allowing a maximum guarantee of 90 percent for loan 
requests of $125 million or less and identifying the conditions under 
which the Agency may issue a 90 percent guarantee.
     Adding a provision that loans made with the proceeds of 
any obligation the interest on which is excludable from income under 
the Internal Revenue Code are ineligible.
12. Subordination of Lien Position
    The Agency moved this provision to the servicing section and 
corrected the cross-reference (from Sec.  4279.123 to Sec.  4287.123).
13. Interest Rates
    In addition to removing the proposed provisions associated with 
blended rates and the 1 percent interest rate cap from the interim 
rule, the Agency has significantly revised this section to now rely on 
the interest provisions found in the Business and Industry Guaranteed 
Loan program at Sec.  4279.125, with several exceptions:
     The rate on the unguaranteed portion of the loan cannot 
exceed the rate on the guaranteed portion of the loan by more than 500 
basis points;
     Variable rate loans will not provide for negative 
amortization nor will they give the borrower the ability to choose its 
payment among various options; and
     Both the guaranteed and unguaranteed portions of the loan 
must be amortized over the same term.
    In addition, the interest rates provisions found in the Business 
and Industry Guaranteed Loan program at Sec.  4287.112 also apply to 
this program.
14. Terms of Loan
    The maximum repayment period has been revised from ``20 years or 85 
percent of the useful life of the project, as determined by the Agency, 
whichever is less'' to ``20 years or the useful life of the project, as 
determined by the lender and confirmed by the Agency, whichever is 
less.''
    The Agency also removed the cross-reference to Sec.  4279.126(d) 
and inserted corresponding text specific to this program (see Sec.  
4279.232(d)).
15. Credit Evaluation
    The Agency made several changes to the provisions for demonstrating 
the borrower's equity. One change allows equipment and qualified 
intellectual project (in addition to real property as was proposed) to 
be used to meet the equity requirement, but clarifying that this 
provision applies to only existing biorefineries and not to new 
biorefineries. In addition, the Agency clarified that equity cannot 
include other direct Federal funding.
    The Agency clarified that the project equity must be demonstrated 
at the time the loan is closed.
    With regard to collateral, the Agency added provisions that it may 
consider, for both existing and new biorefineries, the value of 
qualified intellectual property, arrived at in accordance with GAAP 
standards and subject to discounting. The value of intellectual 
property may not exceed 30 percent of the total value of all 
collateral.
16. Guarantee Applications
    i. Application submittal, deadlines, and process. Reference to 
paper copies has been replaced with reference to the use of the annual 
Federal Register notice to identify the applicable method(s) of 
application submittal.
    ii. Lender's analysis and credit analysis. The Agency added a 
provision requiring the lender to identify whether the loan note 
guarantee is requested prior to construction or after completion of the 
construction of the project; revised the requirement that the required 
personal credit report be from an ``acceptable'' credit reporting 
company to an ``Agency-approved'' credit reporting company; added a 
requirement that personal credit reports are required from key 
employees of the borrower; added a provision to allow the Agency to 
obtain personal credit reports when the borrower is a corporation 
listed on a major stock exchange; and deleted the provision that stated 
credit reports are not required for elected and appointed officials 
when the borrower is a public body or non-profit corporation.
    iii. Feasibility study. Several changes were made to the contents 
of the feasibility study as summarized in the following table. Note 
that only elements that were changed are shown in the table.

------------------------------------------------------------------------
         Feasibility area                         Change(s)
------------------------------------------------------------------------
Economic..........................   Added feedstock risks.
                                     Revised documentation of
                                     woody biomass feedstock to apply
                                     only to woody biomass feedstock
                                     sourced from National Forest system
                                     lands or public lands.
                                     Added ``or sold to'' when
                                     referring to biobased by-products
                                     and producer associations and
                                     cooperatives.
Market............................   Redefined risks to address
                                     competitive threats and advantages
                                     and specific market risks.
Technical.........................   Removed ``any constraints
                                     or limitations in the financial
                                     projections and any other facility
                                     or design-related factors that
                                     might affect the success of the
                                     enterprise.''
                                     Under Risk Related to:
                                     added ``Design-related factors that
                                     may affect project success.''
Financial.........................   Added reference to ``uses
                                     of project capital.''
                                     Revised the provision of
                                     project balance sheets, income and
                                     expense statement, and cash flow
                                     statements from 3 years to over the
                                     useful life of the project.
Management........................   Added biofuel production,
                                     acquisition of feedstock, and
                                     marketing and sale of off-take to
                                     the list of areas to be covered
                                     when describing the borrower and
                                     management's previous experience.
                                     Added risks related to
                                     management strengths and
                                     weaknesses.
------------------------------------------------------------------------
Note: No changes were made to: Executive Summary and Qualifications.

    iv. Economic analysis. The elements of the economic analysis have 
been incorporated in the economic feasibility and financial feasibility 
sections of the feasibility study and proposed Sec.  4279.261(i) has 
been removed from the rule as a separate provision.
    V. Scoring information. The Agency added a paragraph requiring that 
the application must contain information in a format that is responsive 
to the scoring criteria.
17. Lender Certification
    The lender is now required to certify that ``the lender concludes 
that the project has technical merit'' rather than certify that ``the 
project is able to demonstrate technical merit.''

[[Page 8409]]

18. Scoring Criteria
    The Agency revised the date it will score each completed 
application it receives from June 1 to May 1 in the fiscal year in 
which the application is received.
    The Agency also made numerous changes to the criteria it will use 
to score applications. These changes are summarized in the following 
table. Note that only criteria that were changed are shown in the 
table.

------------------------------------------------------------------------
             Criterion                            Change(s)
------------------------------------------------------------------------
Borrower has established a market.   Added requirement for the
                                     advanced biofuel to meet an
                                     applicable renewable fuel standard
                                     in order to be awarded points.
                                     Reduced the percent
                                     commitment from 60 to 50 percent.
                                     Increased points from 5 to
                                     10.
Location of biorefinery relative     Revised to read ``any other
 other similar biorefineries.        similar advanced biofuel
                                     facilities.''
Use of feedstock not previously      No changes were made to
 used in the production of           this criterion.
 advanced biofuels.
Working with producer associations   Corrected example.
 and cooperatives.                   Instituted a two-tier
                                     system that begins awarding points
                                     at a 30 percent threshold.
                                     To be awarded points, must
                                     meet one of the three provisions,
                                     not all three as proposed.
                                     Replaced ``advanced
                                     biobased byproducts'' with
                                     ``biobased products''.
Level of financial participation     Reduced points from 20 to
 by the borrower.                    15.
Impacts on resource conservation,    Increased maximum points
 public health, and environment.     from 5 to 10 and redistributed the
                                     points.
                                     Added examples to each of
                                     the three impact areas.
                                     Added provision to deduct 5
                                     points if feedstock can be used for
                                     human or animal consumption.
Significant negative impacts on      Increased points from 5 to
 existing facilities.                10.
                                     Added provision that if the
                                     feedstock is wood pellets, no
                                     points would be awarded under this
                                     criterion.
Rural economic development           Added provision that the
 potential.                          project be located in a rural area
                                     to be awarded points under this
                                     criterion.
                                     Removed reference to the
                                     median household wage in the State
                                     such that only the County median
                                     household wage is used in awarding
                                     points.
                                     Increased points from 5 to
                                     10.
Level of local ownership..........   Decreased points from 15 to
                                     5.
Project replication...............   Increased points from 5 to
                                     10.
Use of feedstock for human or        Removed as a separate
 animal consumption deduction.       criterion and incorporated
                                     provision for deducting points
                                     under the ``Impact on resource
                                     conservation, public health, and
                                     environment'' criterion.
Use of technology, system, or        Decreased points from 15 to
 process not in operation in the     5.
 fiscal year.
Applications that promote            Added provision to award
 partnerships and other activities   Administrator bonus points.
 that further the purpose of the
 program as stated in the
 authorizing legislation.
------------------------------------------------------------------------

19. Ranking of Applications
    The Agency modified when it will rank applications and when 
applications are due for each of the two rankings. The Agency also 
modified slightly the process that will be used to rank applications, 
which includes allowing an application to be competed in two 
consecutive competitions. This has the effect of allowing applications 
submitted during the second application period of a fiscal year to be 
carried over to the next fiscal year. Conforming changes were made in 
the section addressing ranked applications not funded.
20. Conditions Precedent to Issuance of Loan Note Guarantee
    The Agency added to the introductory text that the lender can 
request the guarantee prior to construction, but must still certify to 
all conditions in this section. The Agency also added a new requirement 
that the lender certify that the borrower has provided the equity in 
the project identified in the conditional commitment.
21. Requirements After Project Construction
    The Agency added a requirement to report on the actual amount of 
biobased product and, if applicable, byproducts produced.
22. Servicing
    The Agency is allowing the financial statements to be submitted 
within 180 days rather than the 120 days required under Sec.  
4287.107(d).
    The Agency made a conforming change in Sec.  4287.307(d) that, for 
working capital loans, the Agency may consider a subordinate lien 
provided it is consistent with the conditional provisions specified in 
Sec.  4279.202(i)(1).
    The Agency determined that the interest rate adjustment provisions 
of Sec.  4287.112(a)(2) should not apply to this program and has 
revised the rule to exclude those provisions.
    As noted earlier, the Agency moved the provisions concerning 
subordination of lien position to this section (see Sec.  4287.307(g)).
    The Agency revised the transfer and assumption provisions to cross-
reference this rule rather than the Business and Industry Guaranteed 
Loan rule.
    The Agency revised the default by borrower provisions by removing 
the cross-reference to the corresponding Business and Industry 
Guaranteed Loan program provisions and inserting text specific to this 
program. This change was made to correct an incorrect cross-reference.
    The Agency revised the liquidation provisions to correct an 
incorrect cross-reference in Sec.  4287.157(d)(13) concerning 
appraisals.
23. Fiscal Year 2009 and Fiscal Year 2010 Loan Guarantees
    Prior to this interim rule, applications were processed and 
guaranteed loans were serviced according to the provisions in the 
November 20, 2008 (73 FR 70544), March 12, 2010 (75 FR 11840), or the 
May 6, 2010 (75 FR

[[Page 8410]]

25076) Federal Register notice, as applicable. Because of the changes 
the Agency has made to the servicing of loans guaranteed under the 
Biorefinery Assistance Guaranteed Loan Program, there may be entities 
that would prefer to have a guaranteed loan serviced under the 
provisions of the interim rule rather than under the provisions in the 
three Federal Register notices pursuant to which their guaranteed loans 
were made. The Agency has determined that such entities should be 
afforded the opportunity to access the servicing provisions of the 
interim rule. Therefore, the Agency has added a new provision to this 
effect in the interim rule.

III. Summary of Comments and Responses

    The proposed rule was published in the Federal Register on April 
16, 2010 (75 FR 20044) with a 60-day comment period that ended June 15, 
2010. Comments were received from 42 commenters yielding 352 individual 
comments on the proposed rule, which have been grouped into categories 
based on similarity. Commenters included biorefinery owner/operators, 
community development groups, industry and trade associations, 
investment banking institutions, Rural Development personnel, and 
individuals. As a result of some of the comments, the Agency made 
changes in the rule. The Agency sincerely appreciates the time and 
effort of all commenters. Responses to the comments on the proposed 
rule are discussed below.

Requested Comments-- a. Preapplications

    Comment: Two commenters state that a preapplication process that 
serves as a screening process could be very helpful to all parties. One 
of the commenters states that considerable effort is required to 
develop an application package that may ultimately not score high 
enough to meet eligibility requirements. In addition, lenders have to 
commit to the application process with no reference as to how the 
Agency will view the project. One option would be to move the 
feasibility study (Sec.  4279.261) and the evaluation scoring (Sec.  
4279.265) into a preapplication process. Screening and filtering out 
ineligible or otherwise low scoring projects would streamline the 
overall process and improve program efficiencies.
    One commenter states that the application requirements, which 
appear to be rather lengthy and burdensome, contain elements that 
should be required by any prudent commercial loan committee reviewing 
the loan itself. The commenter believes a preapplication process for 
the program will only be of benefit to lenders and borrowers if it 
includes a sign-off by the Agency as to completeness of the 
application. The commenter believes it would be a waste of time to 
review a project for acceptability and then review it again for 
guarantee issuance; the review of a partial and then complete 
application would only serve to slow down a process that we are seeking 
to expedite.
    One commenter believes that a preapplication process would only add 
another step in the program and would not further the intent and 
effectiveness of the program. Similarly, another commenter states that 
a preapplication should not be required as it increases the burden of 
required paperwork.
    One commenter recommends that, rather than preapplications, 
specialists be available to assist in evaluating how a given project 
application would likely score against the program criteria.
    One commenter encourages the Agency to consider a pre-application 
process similar to the two-phase process employed by the Department of 
Energy in its current solicitation (DE-FOA-0000140) for Title XVII loan 
guarantees, the lack of which the commenter identifies as an obstacle 
for applying for assistance. This process would be beneficial to the 
extent the ``preapplication process'' is similar to the two-phase 
process that the U.S. Department of Energy (DOE) is using in its 
current solicitation for Title XVII loan guarantees. Requiring less 
than a ``full-blown'' application in Phase I so that the Agency can 
determine eligibility and ``invite'' those applicants with a reasonable 
likelihood of success to apply in Phase II would relieve some burdens 
from applicants. Phase I could include a basic application, a letter 
commitment from the borrower to pursue Phase II if invited to apply and 
the applicant (lender) to lend a specified amount to the project if the 
Agency agrees to guarantee the loan (subject to other customary 
conditions precedent), along with an overview of the project reflective 
of the scoring criteria. This would reduce the level of diligence that 
lenders would have to conduct for Phase I and shift this diligence to 
Phase II when the success of an application is more likely. This may 
entice additional qualified lenders to participate and result in the 
Agency receiving more Phase I applications. A phased application 
process would also reduce the burden on the borrower, who, prior to 
issuance of the loan (or a greater likelihood as evidenced by an 
invitation to submit a Phase II application), may choose not to apply 
and instead allocate limited personnel resources to other tasks.
    Response: The Agency has decided not to implement a preapplication 
requirement. Because the information that would be required in the 
preapplication would be similar to that in a formal application, a 
preapplication would be duplicative and add further burden to the 
lender and Agency. The Agency can meet with the lender/potential 
borrower prior to application submission to discuss the scoring 
criteria and informally review the proposal and application material 
completed to date.
    Comment: One commenter suggests that a qualification form be 
written and posted on the Agency Web site that would be accessible to 
all. The commenter recommends that such a form would contain, at a 
minimum, scoring criteria; equity requirements and detailed examples of 
allowable equity; eligible borrowers; eligible technologies; eligible 
uses of loan proceeds; and approval timelines. The commenter also 
suggests that a blog page be implemented to make available questions 
and answers, new information, comments, and suggestions on an 
interactive basis.
    Response: The rule provides applicable eligibility criteria and so 
no changes were made to the rule based on this comment. The Agency is 
currently revising the USDA Web site and will consider the suggestions 
offered by the commenter. The Agency will also consider preparing an 
application guide.
    Comment: One commenter recommends implementing a pre-application 
process that does not require a lender-of-record. The first hurdle for 
participation in the section 9003 program is convincing a lender to 
commit resources to a project for due diligence, feasibility studies, 
term sheet development, and filing of an application. The program 
requirements are not conducive to lenders, particularly in light of the 
inherent risks associated with first-of-kind commercial advanced 
biofuel projects. Applications from several companies are being held 
back simply because a lender-of-record could not be found to begin the 
process. The structure that the Agency has created is counter to how 
private debt transactions are generally arranged. Typically, an 
investment bank represents the company/project and approaches lenders 
to underwrite the loans. Then, the lender will conduct extensive due 
diligence on the project and decide whether or not to lend and

[[Page 8411]]

on what terms. The proposed structure, however, requires the lender to 
be identified from the beginning, without any indication from the 
Agency as to whether or not there will be a guarantee from the Agency.
    The commenter recommends phasing in applications in two parts as 
follows:
    Part I (Pre-application)--The investment bank representing the 
project submits an application (similar to the current application) 
along with the project company. The Part I application contains the 
level of due diligence required by the Agency and gives the Agency 
comfort that an accredited, U.S. Securities and Exchange Commission 
(SEC)-regulated entity is representing the project and attesting to the 
project's attributes and risks. The Agency reviews that application and 
makes a determination, based on its review, whether a project should 
receive a ``Letter of Intent'' to proceed to Part II.
    Part II--Once a Letter of Intent is issued, the project then seeks 
a lender for the guaranteed portion of the debt and a lender/investor 
for the unguaranteed portion of the debt. The latter is going to be the 
key participant and the one who will conduct a significant amount of 
due diligence to decide whether or not to take the risk on investing/
lending for the unguaranteed portion of the debt. The result of that 
due diligence and a decision to invest should then be submitted to the 
Agency as a Part II ``application,'' which is really more of a 
collection of due diligence findings. The company and the original 
investment bank could even certify as to its accurateness and then the 
Agency can review that final deliverable prior to issuing a guarantee 
and closing the transaction.
    The commenter recognizes that a potential Agency concern is that 
the appropriate level of due diligence would not be conducted unless a 
lender is on the hook for some portion of the unguaranteed portion of 
the loan. However, the fact that there is an unguaranteed note means 
that an investor or lender will do a tremendous amount of due diligence 
prior to agreeing to lend/invest in the unguaranteed portion, which is 
a condition precedent for the Agency to issue a final loan guarantee 
and close a deal. If the Agency's concern is that proper due diligence 
is being done, the Agency should be confident that it will be done 
prior to the closing of the transaction and the issuance of a loan 
guarantee, because there is an unguaranteed portion of the debt that 
has to be placed. But by requiring the ``Lender of Record,'' as defined 
to mean the holder of a portion of the unguaranteed debt, to conduct 
all of that due diligence up front is both unnecessary and unfeasible 
in this market. To protect the Agency from outstanding conditional 
commitments, without the ability to close on the guarantee, a 6-month 
time limit could be placed on submitting a Part II application.
    Response: With regard to a pre-application process, for the reasons 
noted in an earlier response, the Agency is not implementing a pre-
application process.
    As a matter of practice, the Agency is available to meet with 
potential borrowers and/or lenders prior to the submittal of an 
application for a specific project.
    The Agency further requires that a formal application be submitted 
from an eligible lender. From the formal application forward, the 
eligible lender will be the primary point of contact for the project 
with the Agency.

Requested Comments--b. Feedstock

    Comment: One commenter recommends removing the restriction, ``no 
corn feedstock,'' from tandem USDA and DOE programs in the instance of 
biobased chemicals, products, and materials only. The commenter states 
that corn has long given the U.S. a competitive advantage in the 
biofuel industry and that it may be our country's only advantage in the 
clean energy sector. The Agency should not eliminate the advantage of a 
highly efficient industrial product, engineered specifically for use in 
industry and not for food consumption. The Agency should, instead, 
advocate for any advantage in reaching our country's goals to achieve 
both renewable fuel standards and U.S. government biobased product 
procurement program goals.
    One commenter believes that feedstock currently used for the 
production of food, other on-site energy production, and in other 
industries should not be diverted to new energy production, and that 
the current proposal to exclude cellulosic feedstock and ``corn kernel 
starch'' is sound and reasonable, and fits within the Agency's 
guidelines, purpose, and intent.
    Response: The Agency notes that the exclusion of corn kernel starch 
is a statutory requirement and cannot be changed by this regulation. 
However, cellulosic feedstock is eligible under this program.
    Comment: One commenter believes that all biorefineries using any 
eligible feedstock should be eligible for the program because the 
purpose of this program is the creation of advanced biofuel 
biorefineries and limiting feedstock eligibility would not further the 
program's purposes.
    One commenter recommends allowing byproducts from pulp and paper if 
they can be upgraded to higher value products compared to power 
generation, and scoring them equally to other feedstock. Another 
commenter also recommends that byproducts from the paper and pulp 
industry be eligible, if the byproducts meet the criteria of not being 
consumed in a higher value use.
    Response: The program allows for a variety of feedstock. The 
feedstock must be renewable biomass, other than corn kernel starch, as 
defined in the statute. The statute requires that the materials, pre-
commercial thinnings, or invasive species from National Forest System 
land or public lands cannot be used for higher value products. This 
``higher value'' criterion does not apply to byproducts of the paper 
and pulp industry.
    Comment: Six commenters note that the proposed rule limits the 
types of feedstock that can be used to produce biofuels under the 
program. The House Conference Report for the 2008 Farm Bill--House 
Report 110-627, p. 1048, lines 3-8--specifically provides that: 
``Examples of lignocellulosic or hemicellulosic matter that is 
available on a renewable or recurring basis include dedicated energy 
crops and trees, wood and wood residues, plants, grasses, agricultural 
residues, fibers, animal wastes and other waste materials, and 
municipal solid wastes.'' The commenters believe that the Conference 
Managers undoubtedly intended that municipal solid waste can be used as 
a feedstock and state that the Agency has chosen to ignore this letter. 
Instead, the Agency notes in the proposed rule: ``The Agency believes 
that the statute clearly defines eligible feedstock and no further 
clarification is needed in the proposed rule.''
    The commenters believe that the public interest is not served by 
limiting the number and types of technologies that can be used to build 
biorefineries, or in limiting the types of feedstock that are available 
for use and can provide an economic benefit to rural America. The 
commenters urge the Agency to modify the proposed rule to specifically 
state that municipal solid waste can be used as a feedstock, in 
conformity with the express intent of the House Conference Report for 
the 2008 Farm Bill.
    One commenter also recommends stating that municipal solid waste 
can be used as a feedstock and treating municipal solid waste materials 
as a

[[Page 8412]]

homogeneous feedstock eligible to be used in biofuels production, 
consistent with standard recycling practices.
    One commenter recommends including biosolids, or treated sewage 
sludge and its byproducts, as an eligible feedstock, and that 
facilities producing advanced biofuels, solid and liquid, from 
biosolids be allowed to apply for program funds.
    One commenter recommends including all biodegradable solid wastes 
to further expand the types of feedstock that can be utilized.
    One commenter recommends expanding the traditional definition of 
biomass to take advantage of new technologies that convert additional 
organic matters into energy--such as biosolids. Such an expanded 
definition of ``renewable biomass'' would take account of population 
growth in our rural communities and the environmental impacts of the 
traditional methods of biosolids disposal on such rural communities. 
Additionally, the Agency would be encouraging the recycling and reuse 
of a substantial renewable organic feedstock--biosolids, further 
expanding our nation's sources of energy. Specifically, the commenter 
proposes that the definition of ``renewable biomass'' be expanded as 
follows to include: ``(iii) Renewable waste materials and byproducts 
resulting from the treatment of sewage, including biosolids, fats, 
oils, and grease and other byproducts.''
    Similarly, one commenter recommends expanding the definition of 
``Advanced biofuel'' as follows to include: ``(iii) Biofuel (solid or 
liquid) derived from waste material, including crop residue, other 
vegetative waste material, animal waste, food waste, yard waste, and 
treated sewage waste, residues and byproducts.'' According to the 
commenter, specifically including biosolids in the definition of 
``renewable biomass'' as an eligible feedstock, and qualifying the 
definition of ``advanced biofuels'' to include treated human sewage 
waste materials, will encourage the wide-spread adoption of sewage-to-
energy technologies and further efforts by Congress and the 
Administration to develop all sources of renewable energy and create 
jobs in green technologies.
    One commenter states there should be no restriction on feedstock 
used and that the definition of feedstock needs to be expanded to 
include municipal sludge as an acceptable feedstock. The commenter 
states that, with the current need and demand for biofuels, it is 
imperative that there should not be a restriction on the type of 
feedstock used. In addition to producing advanced biofuels in a 
sustainable, efficient manner, it is imperative that waste materials be 
used to produce other advanced products and be utilized in the greatest 
way to achieve energy production and reduce greenhouse gases (GHG).
    Response: The Agency partially agrees with the commenters. The 
Agency has revised the rule to clarify that municipal solid waste is an 
eligible feedstock, but only to the extent that it meets the statutory 
definition of renewable biomass. It is unlikely that homogeneous, 
unsegregated municipal solid waste would meet this definition. The 
Agency has also revised the rule to include as eligible feedstock any 
organic matter that is available on a renewable or recurring basis from 
non-Federal land or eligible tribal land, including biosolids, treated 
sewage sludge, and byproducts of the pulp and paper industry. The 
Agency notes that ``black liquor,'' a byproduct of the pulp and paper 
industry, is not an eligible feedstock, because it includes inorganic 
material and, therefore, does not meet the definition of renewable 
biomass.
    Comment: One commenter states that their technology is 
complementary to recycling and will not use paper that is commonly 
recycled. However, if paper is mixed with municipal solid waste instead 
of being collected separately, it cannot be recycled and should, thus, 
be considered a waste material for the production of biofuels. 
Therefore, the commenter urges the Agency to broadly define waste 
material, consistent with common recycling practices. Further, the 
commenter requests that the Agency not establish separate compliance 
obligations for various component parts of the waste stream, such as 
paper. The commenter, instead, recommends that the Agency provide 
additional guidance on the eligibility of paper, so that soiled paper, 
which is not recyclable, be included in the definition of waste 
material.
    Response: The Agency considers soiled paper mixed with other 
organic municipal solid waste to be eligible renewable biomass. In 
Sec.  4279.228(c), the phrase ``consisting of renewable biomass'' was 
added after the term ``municipal solid waste'' in the description of 
eligible feedstocks.
    Comment: One commenter encourages the Agency to refrain from 
limiting feedstock eligibility for the program unless a particular 
feedstock is prohibited by Section 9003. The commenter agrees that 
``the statute clearly defines eligible feedstock and no further 
clarification is required.'' The commenter states that both Section 
9001(3) and 9001(12) of the 2008 Farm Bill contain lists of feedstock 
that are included, but that these lists should not be construed as 
limiting these definitions to those feedstock listed, but rather as 
examples of the term being defined.
    The commenter asserts that any fuel derived from algae, whether 
blue-green, cyanobacteria, or seaweeds, meets the definition of 
``advanced biofuel'' in all respects, perhaps limited only by Section 
9001(12)(B). Algae are not corn starch, and it is explicitly included 
as an example of ``renewable biomass.'' The commenter would object to 
any efforts by the Agency or other stakeholders to exclude algae by 
administrative discretion. This would be contrary to clear 
Congressional support for the inclusion of algae as ``renewable 
biomass'' and, therefore, an eligible feedstock. The commenter believes 
the Agency views algae as an important feedstock to meeting the 
mandates imposed by the Renewable Fuel Standard (RFS) as evidenced by 
the loan guarantee issued to Sapphire Energy in 2009. The commenter 
applauds the Agency for taking the leading role in supporting the 
development of the algae industry as a vital sector of the broader 
agricultural industry poised to play an important role in securing 
America's energy independence and rural job growth. In sum, the 
commenter suggests that the Agency resist excluding feedstock as being 
``eligible'' if such feedstock would qualify under section 9003.
    Response: The Agency agrees and considers the list provided by 
statute to be illustrative, but not exclusive. No change was made to 
the rule in response to this comment.
    Comment: Two commenters urge the Agency to exercise caution when 
considering limitations on feedstock for use in biorefineries. The 
commenters encourage the Agency to support feedstock that increase the 
overall potential of the biomass industry through widespread 
applicability, creation of jobs, and a positive impact on national 
security, while excluding support for feedstock that compete with food 
or harm the environment. Outside of these specific areas, however, the 
commenters encourage the Agency to remain as feedstock neutral as 
possible in order to allow both the feedstock and biofuels industry to 
innovate freely. In the notice of proposed rulemaking (NPRM), the 
Agency notes: ``At this stage in the development of the biofuels 
industry, it is impossible to know what technologies will become the 
most effective.'' The same is true of feedstock.
    Another commenter also encourages the Agency to remain as 
feedstock-neutral as possible in order to allow the

[[Page 8413]]

feedstock and biofuels industry to innovate freely. The commenter 
believes the Federal government has a dubious track record when it 
attempts to pick winners and losers in the energy space, and the 
advanced biofuels sector should be no exception. The commenter warns 
against excessive limitations on feedstock for use in biorefineries. 
Concerns over competition with food or harm to the environment are 
legitimate and should be addressed; however, the Agency should also 
take into account the overall potential of the biomass industry through 
widespread applicability, creation of jobs, and a positive impact on 
national security.
    A third commenter states that the regulations need to provide 
sufficient flexibility so that the refinery can minimize the cost of 
its biofeedstock. To accomplish this, it is essential that the rules be 
feedstock-neutral. The commenter understands that there are as many as 
3,200 potential biofeedstock and that the economic viability of a given 
feedstock is likely to vary significantly by region. The commenter 
believes it is inappropriate at this stage to single out one or more 
specific feedstock or those with specific characteristics that would 
disqualify their use in a biorefinery supported by the section 9003 
program. That decision should be made in concert with the Agency when 
an application is being evaluated based on all relevant sustainability 
issues. The commenter also believes that it will be necessary to 
provide the ability to utilize alternative feedstock on an 
opportunistic basis in the event that they are economically 
advantageous to use.
    Response: The Agency agrees with the commenters and is not trying 
to exclude any eligible feedstock. The Agency notes, however, that it 
wants to encourage all advanced biofuels, except in very limited 
specific instances (e.g., feedstock that can be used for human or 
animal consumption) and that, beyond such instances, it does not want 
to limit specific feedstock from participation in the program.
    Comment: One commenter states that any exclusion to the definition 
of feedstock should be based solely upon GHG life-cycle emissions. For 
example, if a specific feedstock is estimated to produce fuel that 
causes no significant reduction in life-cycle GHGs compared to 
conventional fuels, or causes more emissions than conventional fuels, 
the Agency should consider excluding such feedstock from the list on 
that basis.
    One commenter states that conversion technologies, on a life-cycle 
basis, are among the cleanest methods available for the production of 
advanced biofuels and green power.
    Response: The Agency disagrees with the recommendation to exclude 
any feedstock based solely on the basis of GHG life-cycle emissions of 
the resulting advanced biofuel. The feedstock must be renewable 
biomass, other than corn kernel starch, as defined in the statute. 
However, to help address such environmental considerations as GHG life-
cycle emissions, the Agency has revised the scoring criteria such that 
an advanced biofuel must meet an applicable renewable fuel standard as 
identified by the U.S. Environmental Protection Agency (EPA) in order 
to receive points under the first scoring criterion.
    The Agency is currently considering various models related to life-
cycle analysis and has not identified an appropriate model at this 
time. Should a model be selected by the Agency, the rule will be 
amended accordingly.

Requested Comments--c. Rural Area Requirement

    Comment: Four commenters recommend not restricting a biorefinery to 
a rural area. Restricting the location of a biorefinery to a rural area 
is, in theory, a logical extension of an already established value-
added agriculture industry. At first blush, it serves the purpose of 
the 2008 Farm Bill to boost the rural economy. However, as the economic 
crisis continues, more flexibility of site selection, not less, should 
be installed in these programs. The commenters believe that restricting 
these vital programs to rural areas is not only impractical and 
illogical, but fundamentally unfair to urban communities in desperate 
need of economic revitalization and job creation. The Agency, 
therefore, should enable biorefineries to develop wherever there is 
market potential regardless of whether that area is rural.
    One commenter further states that the siting of biofuel facilities 
will be dependent on available feedstock, infrastructure, logistics, 
and other factors. Undoubtedly, many advanced biofuel facilities will 
be located in rural areas due to feedstock availability. However, to 
the extent that qualifying renewable biomass is located in other areas, 
the Agency should not discourage utilization of these resources by 
excluding non-rural facilities from eligibility for the payments 
program. Additionally, the scoring criteria in Section 9003(e)(1)(C) 
also demonstrate that ``the potential for rural economic development'' 
is merely one of ten factors that the Agency is directed to consider. 
While this scheme indicates that Congress intended that the Agency 
grant some level of preference to rural development, it does not 
support an interpretation that would preclude the issuance of loans to 
facilities in non-rural areas. The commenter states that, as with 
citizenship requirements, if Congress intended that rural development 
be a prerequisite, it would have explicitly stated so.
    One commenter states that the rural location requirement will 
unfairly exclude biorefineries that make quality fuels, utilize 
domestic feedstock, and benefit American farmers and their communities. 
The commenter believes that any biorefinery constructed in the U.S. 
that provides jobs for U.S. workers and utilizes domestic agricultural 
feedstock produced by American farmers should be eligible for a loan 
guarantee under the program. The commenter believes that this was the 
intent of Congress, and is consistent with the national renewable 
energy and energy security goals. The commenter recommends removing the 
proposed rural location requirement in the final rule for biomass 
grant, loan, and loan guarantee programs.
    One commenter states that, given that feedstock availability and 
reliability is paramount to success, any location that can support a 
successful project should be allowed, especially if the site was chosen 
in order to achieve feedstock availability and reliability. The same 
could be said for off-take agreements if the chosen feedstock can be 
brought to the proposed site easily, yet the off-take requirements 
necessitate a non-rural location. For example, for a project with 
Fisher-Tropsch output to make economic sense, the biorefinery would 
need to be co-located with an existing fossil fuel refinery, which may 
not be in a rural area. As another example, in order to have access to 
the largest possible geography for off-take, if a project must be 
located in a port facility that is in a non-rural area, this should be 
equally allowed.
    The commenter also states that the program will only succeed in the 
event that proposed projects can minimize overall risk as much as 
possible. Project location can have a huge impact on this issue. Rather 
than citing ``consistency with other programs'' as a justification for 
a proposed rule, the criteria should be tailored to the needs of this 
specific program. In this case, any location that makes it easier to 
achieve project financing should be allowed without exception. There 
should be no restrictions on location for this program. It could make 
sense for a different program targeted at the scale-up of commercially 
proven technologies, but

[[Page 8414]]

in this context adds unnecessary additional burdens to achieving 
already challenging lender financing criteria.
    One commenter opposes the rural area requirement, stating that 
biorefineries located in nonrural areas should be eligible. Nowhere in 
the authorizing legislation for this proposed rule did Congress even 
suggest that the section 9003 program be limited to rural areas. For 
the Agency to go outside the statute and make such a recommendation is 
puzzling at the very least, given the difficulty companies already face 
in opening biorefineries. The commenter states that the Agency should 
encourage biorefineries to develop wherever there is market potential, 
regardless of whether that area is rural, in order to meet the Agency's 
goal for an overall Federal renewable energy strategy designed to 
foster the development of a strong, expanding, and sustainable group of 
renewable energy industries in the U.S. to supply an increasing share 
of the country's energy needs.
    One commenter, while recognizing the importance for the Agency to 
increase economic opportunity and improve the quality of life in rural 
communities, cautions against defining ``rural area'' with too much 
restriction, potentially disqualifying ideal sites for biorefineries 
that would, in fact, meet the program goals and increase economic 
opportunity in rural communities, but may be located in areas that do 
not fit the program definition. Offering eligibility to facilities in 
non-rural communities is critical to the success of the program goals 
and the advanced biofuels industry. Restricting the location of these 
facilities is not necessary to maintain the spirit of enhancing rural 
development and the geographic diversity of advanced biofuels 
production. More flexibility of site selection, not less, should be 
installed in these programs.
    The commenter further states that having a consistent, cost-
competitive regional supply of feedstock is key to the success of any 
project. Non-rural plants that use agricultural feedstock will most 
certainly rely on the surrounding rural communities to produce, 
harvest, store, and handle feedstock needs. With feedstock cost 
representing the largest operational cost of a biorefinery this, in 
turn, means that most of what the plant spends goes to the rural 
community in paying for that feedstock. This should demonstrate that 
the biorefinery does not need to be in a rural area to fulfill program 
goals. Excluding plants that are not in rural areas denies the 
supporting rural community significant opportunity.
    One commenter states that winter barley from the rural community is 
key to the success of their project. According to the commenter, an 
independent economic analysis determined that their project will create 
an additional $100 million in revenue to rural farmers and create 450 
farm jobs, clearly demonstrating that the biorefinery does not need to 
be in a rural area to fulfill program goals. In some circumstances, the 
decision of where to site a facility will be based on infrastructure 
often not available in rural areas (power, natural gas, transportation 
modes). Excluding facilities that are not within a strict definition of 
a rural area denies the supporting rural community significant 
opportunity.
    One commenter states that their research indicates that biofuel 
refinery business plans will produce biofuels that cost substantially 
more than JetA and diesel. The commenter believes it is vital to 
minimize biofuel costs where airlines are supporting development of 
biofuel refineries by long-term cost plus purchase contracts. The 
commenter states that early research suggests that biofuel costs would 
be reduced by using as much existing infrastructure as possible 
throughout the entire supply chain (this includes delivery pipelines, 
refinery facilities, and agricultural infrastructure) and that 
requiring a biorefinery to be located in a rural area is likely to make 
it impossible to use some existing infrastructure, most particularly at 
refineries. The commenter recognizes that the purpose of the program is 
to support business development in rural areas, and proposes that 
biorefineries that are not located in rural areas, but obtain more than 
75 percent of the dollar value of their raw materials from rural 
America, should qualify for the program.
    One commenter states that, to maximize the rural economic benefits 
of the section 9003 program in furtherance of the Agency mission, a 
project's location in a ``rural area'' be removed as a threshold 
eligibility requirement and, instead, that a project's rural economic 
benefits be added as an evaluation criterion to proposed Sec.  
4279.265(d). Rural Development's mission to enhance the quality of life 
and economic foundation of rural communities would be furthered by a 
more comprehensive evaluation of a project's potential rural economic 
benefits. A project's rural economic impact is not only determined by 
the location of the biorefinery, but by the origin of the feedstock as 
well. Awarding points to projects based on their level of economic 
impact to a rural community is consistent with the Agency's mission and 
allows maximum opportunity for the commercialization of domestic 
advanced biofuels in the U.S. Dedicated energy crops, such as 
carnelian, are grown in rural areas. Thus, the commenter encourages 
Rural Development to consider a project's location in a rural area or 
its feedstock's rural origins as plus factors in the evaluation 
criteria. Many non-rural advanced biofuel refining projects can yield 
substantial economic benefits for rural America, in addition to 
increasing energy independence, decreasing greenhouse gas emissions, 
and diversifying agricultural markets. Thus, a more inclusive approach 
would maximize the impact of the section 9003 program.
    One commenter believes that, while the definition of a rural area 
should be included, the definition proposed is too broad. The commenter 
requests deleting the wording ``and the contiguous and adjacent 
urbanized area'' through the remainder of the paragraph ending with the 
words ``otherwise considered not in a rural area under this 
definition.'' The use of ``not more than 2 census blocks,'' and 
``contiguous and adjacent urbanized area'' appears intended to make the 
definition of rural as broad as possible, which is unwarranted and 
inappropriate. The Agency's scarce funding dollars should focus on 
truly rural areas particularly those further away from larger cities 
and more densely populated areas. The benefits of job creation should 
go to actual rural areas, not simply those areas that are adjacent to 
rural areas.
    One commenter states that, while the proposed rule states that 
projects that are located in areas determined to be ``rural in 
character'' will be eligible, it does not explain how this nebulous 
determination will be made except to say in the same manner as in the 
business and industry (B&I) guaranteed loan program. The commenter 
believes that this terminology is far too broad and should not be 
allowed for determining rural areas. B&I guaranteed loans are much 
smaller than those envisioned in this program and the commenter 
believes the program should truly serve rural areas. Allowing rural 
areas to be defined in the manner stated is completely arbitrary and 
could open the program to abuse and unnecessary criticism.
    One commenter states that the rural area requirement needs to be 
amended because many of these facilities have to be located where there 
are essential infrastructure, land available and

[[Page 8415]]

specialized jobs, which is usually in the larger communities. 
Facilities should be allowed to be located in communities larger than 
50,000 if they are proposing to obtain a certain percentage (like 
greater than 25 percent) of their feedstock from rural areas. This will 
help farmers, rural businesses and rural cities find markets for their 
feedstock (solid waste, grease, crops, etc). By allowing them to be 
located in urban areas, it will increase the number of sites available 
to locate these facilities but at the same time increase feedstock 
markets for rural residents. Until these types of energy projects are 
well developed and mature, the commenter believes that all barriers 
that they may be encountering should be mitigated.
    One commenter believes that, for new projects, implementing the 
rural area requirement will help the Agency fulfill its mission to 
improve economic conditions of rural America. However, with regard to 
retrofitting of existing biodiesel facilities, this requirement may not 
be practical as many existing facilities are no longer in production 
and are not all located in rural areas and an exception should be 
considered if the viability of the project is otherwise strong.
    One commenter supports the requirement that the program only be 
used for biorefineries in rural areas. The commenter believes that the 
program should be targeted to rural economies.
    Response: In consideration of all of the associated comments 
reflected above on rural area, the Agency has, as a matter of policy, 
reconsidered the proposed rural area requirement. The beneficial 
impacts of the program will generally be in rural areas even if the 
biorefinery is located in an area that does not meet the proposed rural 
area definition, because biomass production is expected to occur 
largely in rural areas and, thus, rural economies will benefit from the 
increased use of biomass. The Agency is, therefore, removing the 
proposed rural area requirement from the rule as an eligibility 
criterion.
    The Agency notes, however, two provisions of the interim rule. 
First, the project must still be located in a State in order to 
participate in this program. Therefore, the Agency has modified the 
location requirement so the project must be located in a State, as 
defined in Sec.  4279.2. Second, the project must be located in a rural 
area in order to receive points under the potential for rural economic 
development criterion (see Sec.  4279.265(d)(8)).
    Comment: One commenter recommends redefining the definition of the 
``location population'' classification of eligible and ineligible areas 
for the purpose of including companies that are located in cities. The 
commenter states that they would be eliminated solely due to the 
Agency's classification of location population. Presently, the Agency 
defines a City to be greater than 50,000 persons. The City of Erie 
holds approximately 102,036 persons and the Borough of Wesleyville 
holds approximately 3,617 persons. Therefore, according to the Agency 
eligibility map, both the City of Erie and the Borough of Wesleyville 
are deemed ineligible areas.
    The commenter requests expanding the boundaries that define the 
location population to define a city as a populace of over 500,000 to 
1,000,000 persons versus 50,000 persons.
    Due to the present classification by the Agency, the commenter is 
not qualified to apply for any Agency funding programs (grants or 
loans) because the commenter is located in an area that encompasses the 
City of Erie and its outlying areas, even though they have low 
population.
    The commenter states that their plant has the versatility to run on 
various feedstock from non-vegetable oils to animal fats to 
agricultural feedstock such as soy. It is also located on Lake Erie 
where it has access to shipping, two interconnected railroads (CSX and 
Norfolk Southern), I-90 and I-79. Thus, it can easily bring in 
feedstock and ship out finished biodiesel. The commenter states that, 
if they could be deemed located in an applicable area, then they could 
apply for Agency funding and build on relationships with local/domestic 
farm institutions.
    Response: As noted in the previous response, the Agency has 
reconsidered the proposed rural area requirement and has removed it 
from the rule as an eligibility criterion. Thus, the applicant's 
facility would be eligible for participation in this program. The 
Agency notes that the definition of ``rural area'' is broader than 
previously used by the Agency and includes provisions for allowing 
urbanized areas to qualify for being ``rural in character.''

Requested Comments--d. Foreign Ownership

    Comment: Numerous commenters recommend eliminating the 51 percent 
U.S. citizen ownership requirement in biomass grant, loan, and loan 
guarantee programs. U.S. government grants, loans, and loan guarantees 
are a large piece of incentivizing private financing for large-scale 
commercial projects. This incentive is diminished by requiring at least 
51 percent domestic ownership. It presents the green business world 
with a conundrum. The commenters note that they need government grants, 
loans, and loan guarantees to attract investors who understand green 
investment. The investors who understand green investment are often 
foreign, where the clean tech investment framework is readily 
understood. Yet, the U.S. loan guarantees put a 49 percent limitation 
on foreign investment. In the age of a global economy, this citizenship 
requirement is impractical and ineffective. It inhibits the purpose of 
the program to incentivize private equity investment in the sector and 
may lead to job outsourcing. An increase in private equity in this 
sector is the key to multiple goals of current U.S. domestic policy. 
Green job creation, reduced dependence on foreign oil and reaching 
climate change reduction goals all benefit the country and taxpayers 
irrespective of funding sources.
    As a regulatory matter, a 51 percent determination of domestic 
investors is untenable. An investor's domicile often cannot be 
discerned as foreign or domestic. A successful, ready to scale 
biochemical company is usually funded by a number of sources, both 
foreign and domestic, often made up of venture funds with investment 
from around the world, funds of funds, and independent investors alike. 
To discern whether or not the individual owners or investors of a fund, 
that owns a fund, that is invested in a particular portfolio company 
has 51 percent U.S. ownership, is not only impractical, it is 
impossible.
    Additionally, the citizenship requirement is hurting rural America. 
The policy is delaying the administration's ability to reach its 
economic goals for rural America and energy independence goals for the 
country. The commenters hope that the Agency will use all of the 
resources available to help the administration reach its energy 
independence goals by removing all citizenship requirements. Rural 
Americans that benefit from the jobs created by these biorefineries do 
not care about the ownership of the biorefineries. The jobs provide 
much needed economic stability for local economies. The commenters 
state that Congress did not include eligibility restrictions as part of 
the program and the Agency's decision is a significant departure from 
Congressional intent. Rural Development regulations were implemented 
when our rural economy looked significantly different from today's 
rural economy. The commenters believe that the creation of 
biorefineries should be promoted in rural America, regardless of 
ownership.
    One commenter further states that Congress specifically outlined 
the

[[Page 8416]]

definition of ``eligible entity'' and chose not to include any 
citizenship requirements. Had Congress intended to do so, it would have 
done so explicitly.
    Another commenter states that to impose such a restriction without 
being mandated to do so by statute is counterproductive and will delay 
the development of new technologies and thwart achievement of the 
section 9003 program's purpose. To the extent the Agency considers 
citizenship of the borrower, it should be limited to the requirements 
of section 9003 and consider it only as one of many factors in 
evaluating and scoring an application.
    Two commenters recommend considering foreign ownership in the 
context of all of the benefits of any given project and make decisions 
on a case-by-case basis rather than establishing an inflexible limit on 
the percentage of foreign investment.
    One commenter offers this provision: The proposed rulemaking 
requires that, if the borrower is an entity other than an individual, 
it must be at least 51 percent owned or controlled by individuals who 
are either citizens or legally admitted permanent residents residing in 
the U.S. When an entity owns an interest in the borrower, that entity's 
citizenship will be determined by the citizenship of the individuals 
who own an interest in the entity or any subentity based on their 
ownership interest. Similarly, 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 or legally admitted permanent residents 
residing in the U.S.
    One commenter recommends that non-U.S. ownership be permitted and 
that, if points are awarded for local ownership, the Agency consider 
awarding points based on estimated job creation. On the whole, the 
commenter supports rational requirements for new technologies that will 
foster rural development as those industries have a chance to grow.
    One commenter recommends that, as long as the ownership of the 
project has at least 25 percent U.S. citizenship, the project be 
equally eligible. Given the challenges to achieve funding sources to 
date, the program should be open to the widest possible sources of 
funding.
    One commenter recommends allowing borrowers that are entities that 
are other than individuals to be owned or controlled by less than 51 
percent of either citizens or legally admitted for permanent residence. 
The percentage could be 34 percent of U.S. ownership or legally 
admitted for permanent residence instead of 51 percent. It will allow 
for additional investment from non-U.S. investors that may have a 
higher comfort level in investing in these types of energy projects. 
These types of energy projects are more advanced in other countries, so 
foreign investors are more familiar with the technology and are willing 
to invest in these projects. Banks in Europe are also more familiar 
with financing these types of projects, so they may feel more 
comfortable to finance a project in the U.S. if one of their existing 
customers in Europe is investing and developing an energy project in 
the U.S.
    One commenter believes that the foreign ownership requirement 
should be strengthened to eliminate the automatic presumption that 
companies traded on U.S. stock exchanges are 51 percent owned by 
persons who are either citizens or legally admitted permanent residents 
residing in the U.S.
    One commenter states that the proposed rule makes eligibility 
parameters extremely broad as almost any U.S. citizen or corporation 
with majority U.S. ownership is eligible. The commenter agrees with the 
citizenship requirements as one way to partially limit the scope of 
those eligible for loan funding.
    Response: The Agency has determined that it is in the best 
interests of furthering the Administration's goal of increasing the 
production of advanced biofuels to broaden the Biorefinery Assistance 
Guaranteed Loan Program applicability to include making loans to 
eligible domestic or foreign-owned advanced biofuel refineries.

Requested Comments--e. Program Obstacles

    The Agency received numerous comments on program obstacles and ways 
to improve the program. Please note that for those comments received 
under this section that are the same or similar to comments made on 
specific provisions within the rule, the Agency has grouped such 
comments with those comments made on the specific rule section rather 
than presenting them below in this section.
Total Loan Guarantee Amount
    Comment: Several commenters recommend publishing the total loan 
guarantee amount, not just the monetary fiscal appropriation. With all 
USDA loan guarantee programs, there is a multiplier risk calculation 
that is set by OMB for each annual appropriation, which allows the 
total of the loan guarantees awarded to be greater than the actual cash 
appropriation. The commenter state that transparency is needed from 
USDA and OMB in advance to know what the lending authority is at the 
beginning of the fiscal year. Without that information, applicants do 
not want to apply, and lending institutions do not want to take the 
time to support the application if there is not adequate funding for 
the programs.
    Response: The Agency will provide, by Notice, the available program 
level funding for a specific fiscal year. No change was made to the 
rule in response to this comment.
Evaluation and Approval Process
    Comment: One commenter believes that the evaluation and approval 
process may be an obstacle. The evaluation process must be transparent 
and clearly stated with established timelines for the approval process.
    Several commenters state that the evaluation process must be 
transparent, clearly stated, with established timelines for the 
approval process. These commenters recommend holding a pre-application 
and post-application meeting at the state office, at a minimum, to 
discuss the procedure and the requirements with the applicant and the 
lending facility. Large projects take intense coordination, management, 
and incur the up-front expense of permitting, detailed engineering, and 
other development costs. The financing program must be implemented 
within the same schedule as the other tasks to properly complete the 
project on time and under budget.
    Response: With regard to establishing timelines for the approval 
process, the Agency disagrees that this is possible because timing 
varies dependent on the unique characteristics of applications 
submitted. With regard to transparency, the Agency is satisfied that 
the evaluation and approval process is transparent and, for those 
applications that are denied, the Agency advises the lenders 
accordingly and provides them appeal rights.
    Lastly, with regard to the suggested meetings, as noted in an 
earlier response, the Agency can meet with the lender/potential 
borrower prior to application submission to discuss the scoring 
criteria and informally review the proposal and application material 
completed to date. Further, Agency personnel are always available to 
answer questions.
Guarantee During Construction
    Comment: Several commenters state that it is imperative that the 
section 9003 loan guarantee continue to cover the construction period. 
No other

[[Page 8417]]

funding mechanism currently exists that could fund during the 
construction period without the loan guarantee in place.
    One commenter states that, to be a complete program, the loan 
guarantees must include the construction period.
    One commenter states that one of the greatest needs in renewable 
energy financing is construction financing. The commenter recommends 
setting up the section 9003 program to provide its guarantee at the 
outset of the project's construction so that the guarantee covers the 
construction risk. It appears this may be the case based on the 
reference in Sec.  4279.256(e), but this should be made expressly clear 
that such coverage is to be available routinely.
    Response: The rule allows the Agency to guarantee the project prior 
to construction or after completion of the construction. The Agency has 
revised the rule in Sec. Sec.  4279.261 and 4279.281 to clarify this.
Forms
    Comment: Several commenters recommend that the Agency prepare and 
provide fillable servicing reporting forms for lending institutions to 
provide the lender with a manageable, easy to use format for fulfilling 
the section 9003 reporting requirements. One of the main concerns that 
lenders face is the possibility of losing the Agency guarantee through 
improper or misunderstood reporting requirements. The Agency should 
provide actual forms and a section 9003 program reporting guidance 
document to all lenders, as well as post the documents on the Agency 
Web site for full review. An Agency primary contact person should also 
be provided to the lender during the application process as well as 
throughout the loan servicing process.
    Response: The Agency will take this comment into consideration as 
it develops the forms for the implementation of the regulation. 
Applicants may always consult the Agency's National Office Energy 
Division with any questions they may have during the application 
process and loan servicing process.
Technical Reports
    Comment: Several commenters recommend modifying the technical 
report to include elements of a project management plan that can be 
used by the applicant, lender, EPC (engineering, procurement, and 
construction) contractor, and the Agency to properly evaluate, 
benchmark, and complete the project within the time frames and budgets 
as proposed. Every major EPC contractor has software programs and 
policies and procedures in place that would provide this kind of 
reporting and which has previously been used for government contracting 
projects. This would also assist in organizing the application to 
become a living document that could then be utilized to begin the 
construction process and used throughout the life of the project, 
thereby saving time and resources.
    Response: The Agency does not object to the incorporation of 
elements of a project management plan in the technical report. However, 
the Agency is neutral on the use or brand of project management 
software.
Total Project Guarantee
    Comment: One commenter recommends utilizing the program to 
guarantee the full cost of a project, not just the biofuels portion.
    Response: The authorizing legislation does not allow the Agency to 
guarantee the full cost of a project.
    Comment: Several commenters recommend utilizing the loan guarantee 
to purchase, build, and operate all the collateral necessary to develop 
the total project, not just the biofuels portion. Because of the nature 
of biomass-to-biofuel production, there can be, and usually is, a 
significant portion of waste fiber material that is best utilized by 
gasifying, burning, or converted in some form that is usually 
ultimately manufactured into renewable electricity or another power 
product. Alternatively, the waste material is utilized in the 
production of animal feed or fertilizer. These products are also 
vitally important in providing sustainable, long-term profitability and 
production for the project and can greatly enhance the production 
capabilities of the region. The loan guarantee should cover all of the 
expenses of the entire project. Other expenses that are not listed in 
this rule but should be included are the cost of buildings, engineering 
fees, utility interconnect studies and infrastructure, vehicles, 
natural gas and electricity infrastructure costs, road upgrades or 
construction, and bonding and insurance costs.
    Response: The Agency disagrees with the recommendation to cover all 
of the expenses of the entire project. The Agency anticipates an over-
subscription of the program. Therefore, the Agency's intent is to focus 
the program's limited funding resources on core project costs, which 
are identified in the interim rule as eligible project costs (see Sec.  
4279.229(e)). As the program matures, the Agency may consider whether 
to expand the list of eligible project costs, which is provided for in 
the interim rule (see Sec.  4279.229(e)(7)).
Bond Financing
    Comment: One commenter advocates the Bond Loan Model as the most 
efficient financing mechanism for renewable energy projects and states 
it can be executed in a more cost-effective and timely manner than 
conventional financing transactions utilizing the Conventional Loan 
Model, particularly in light of the lack of commercial banks' 
willingness to commit to loans of 15 to 20 years.
    Three commenters recommend financing through the use of corporate 
bonds. One commenter states that they recently reviewed a proposed 
corporate bond structure that would allow companies to issue 15 to 25 
year non-amortizing bonds that would have the Agency guarantee 
attached. This would significantly reduce the cost of borrowing and 
provide a creative alternative to conventional commercial bank 
financing. The commenter believes using the loan guarantee program in 
support of this type of structure would provide a very viable financing 
source for these projects and would help achieve the overall objectives 
of creating a biorefinery industry.
    One commenter states that, because they are recognized as a more 
freely tradable instrument than loan participations, the interest cost 
to borrowers (bond issuers) is often lower with bonds than with 
traditional loans. By not recognizing the predominant method for 
financing large commercial projects, the section 9003 program will 
likely not attract the larger producers of advanced biofuels and, 
equally important, will likely not attract the investment banking firms 
that are needed to facilitate these complex financings. The commenter 
suggested language for allowing the use of corporate bonds.
    Three commenters recommend allowing borrowers to issue notes or 
bonds directly to accredited investors by way of capital markets 
offerings for both the guaranteed and unguaranteed portions. Two of the 
commenters point out that the proposed rule allows only for the sale of 
indirect ``participations'' in the unguaranteed portions, with the 
original lender retaining title to the notes, and does not contemplate 
the sale of notes or bonds in the capital markets (except with respect 
to the sale of the guaranteed portion to accredited investors).
    The commenters state that banks are unwilling to fund the 
unguaranteed portion of the loans. The commenters point out that, in 
the current market,

[[Page 8418]]

only institutional investors are able, through capital markets 
transactions, to assume the perceived level of risk on the unguaranteed 
portion of the loans. Efficient capital markets transactions, including 
the sale of bonds, will require the direct sale by the borrower of 
notes or bonds to investors. As is market practice, a trustee would act 
on behalf of the bond investors as a class with the original lender 
performing the role of Collateral, Inter-creditor and Administrative 
Agent on behalf of all lenders, investors and the Agency. In that role, 
the original lender will perform all of the servicing duties 
contemplated under the proposed rule.
    One commenter encourages the Agency to consider utilization of bond 
financing mechanisms in order to expand opportunities for debt finance 
where traditional credit markets are tight as one way to reduce program 
obstacles. The commenter believes that the currently proposed 
requirements dramatically reduce the number of lenders that will be 
willing to work with the program due to the current bank market and 
high-risk associated with this new industry. The Agency can address 
this problem by expanding the definition of eligible lender to enable 
utilization of the bond market in addition to the bank market. The bond 
market is favorable at this time because it is largely untapped in 
comparison with the bank market, it is more flexible than traditional 
commercial lending, and it eliminates a substantial portion of the risk 
for the lender. This can be accomplished by permitting a corporate 
trustee and investment bank to, collectively, function as an ``eligible 
lender'' for purposes of taxable corporate bond transactions.
    One commenter states that the regulation needs to clearly state if 
bonds are allowed, what type of bonds should be allowed, who can issue 
the bonds, who can purchase the bonds, and how they are to be serviced.
    Response: The Agency is authorized to guarantee loans, which in 
certain circumstances may include bonds as described below, under this 
program. The Agency considers that this requires a lender to make the 
loan from its resources and then service that loan itself. While the 
Agency will permit the lender to secure limited servicing 
responsibilities from third parties, the lender must remain responsible 
for the servicing.
    The Agency considers this as distinct from the typical investment 
banking scenario, where an investment bank secures the financing from 
outside investors. After the funding is secured, the investment bank 
has no further involvement with the transaction. Servicing is handled 
by a trustee who reports to and is controlled by the investors. The 
Agency considers that this is an investment instead of a loan and that 
its current authority is insufficient to guarantee investments.
    Recognizing the current difficulties in securing funding, the 
Agency has been approving certain bond transactions. The Agency 
considers that, under the limitations contained in this regulation, 
guaranteeing these bonds is in keeping with its authority. In order to 
be more transparent of its willingness to guarantee certain bond 
transactions, the Agency has modified this regulation accordingly.
    Specifically, the lender is required to provide the loan proceeds 
and service the loan. The Agency will allow a trustee to provide 
limited servicing only if the trustee is fully under the control of the 
lender. Holders' rights are limited to receiving payments under the 
note or bond and if those payments are delinquent making demand for 
payment on the lender and the government as provided in the regulation. 
In certain cases where the lender and borrower desire to change the 
loan terms, the holder is also required to consent to any changes. 
Loans providing holders any other rights are ineligible for guarantee 
under this program.
    Comment: Several commenters recommend including the option to 
utilize bond financing. The section 9003 program has already 
established a precedent in funding a project through the use of bonds. 
The need for lender participation through the section 9003 program can 
be met through use of an appropriately structured bond program to 
achieve effective financing in today's capital markets.
    The commenters recommend expanding the section 9003 program to (1) 
permit treatment of large commercial banks or investment banks with 
substantial corporate trust practices as ``eligible lenders'' when 
acting as a bond trustee and (2) find that the ``minimum retention'' 
requirements are met if the bank, in its capacity as bond trustee, 
holds 100 percent of the legal title to the underlying corporation debt 
obligation and to related mortgage and security interests, even if the 
beneficial interests are participated out and held by a controlled 
number of sophisticated, institutional investors.
    For purposes of the section 9003 program, the commenters advocate 
the expansion of the lending criteria to include a structured bond 
financing approach, which will assure the Agency of safety and 
soundness in the lending activity it guaranties, including high quality 
loan servicing, as well as the involvement of knowledgeable, 
professional investors well-qualified to evaluate and manage risks.
    Response: The Agency can only consider bond financing where the 
lender purchases all bonds and sells and/or participates thereafter. In 
all scenarios, the lender is responsible and controls the servicing of 
the loan. In addition, the lender would be required to fully control 
any trustee related to the bond financing.
    Regarding eligible lenders, the rule reflects requirements that are 
similar to the requirements for a traditional lender under the Business 
and Industry guaranteed loan program. The Agency has determined that 
its current authority would not permit using an investment bank bond 
model. Unlike the authority given to the Department of Energy that 
permits the guarantee of debt obligations in addition to loans for 
several of its programs, the authority for this program is limited to 
guaranteeing loans.
    Comment: One commenter states that several banks have noted the 
limitation on the participation of noncommercial bank lenders. Given 
the size of the loan required to construct a commercial cellulosic 
ethanol facility, noncommercial bank participants will likely be 
critical to any effort in completing financing of a project. The 
commenter states that they are aware of discussions to use the loan 
guarantee program to guarantee bonds sold to accredited investors. 
Given the apparent lack of appetite in the debt markets, expanding the 
program to cover the bond market will increase potential financing 
options for cellulosic projects.
    One commenter states that they have contacted numerous banks and 
insurance companies and have been unable to locate a commercial lender 
to finance the debt portion of a project despite the section 9003 
program. Although the financial market conditions of the past 18 months 
have contributed to some degree to this challenge, the lack of 
available lenders has less to do with the recent debt crisis and more 
to do with structural issues with the program. The section 9003 program 
today is modeled after the B&I guaranteed loan program and requires a 
commercial lender to apply for the guarantee. This model has worked 
fine for the B&I guaranteed loan program because the typical loan size 
is sufficiently small. There are hundreds, if not thousands, of small 
rural banks that can fund small guaranteed loans. The section 9003 
program, targeted at much larger projects with debt components that 
start at $70 million and

[[Page 8419]]

go up from there, quickly outstrips the capabilities of rural and even 
regional banks. The remaining lenders are ``too big to fail'' sized 
banks that have little, if any, experience with USDA programs. The only 
way for Wells Fargo, and even Rabo Bank, to fund one of these loans 
requires a high level executive decision to create a whole new line of 
business. So far that has not happened and expectations are that not 
much progress will be made in this arena.
    As a result, the commenter states that they have been working with 
the Agency, specifically Undersecretary Tonsager and his team, to 
determine how best to adapt the program to the use of the commercial 
bond market which is a far better solution for the following reasons:
    1. Bond investors provide ``patient'' capital that provides term 
lengths that match the project life better than a commercial loan.
    2. Bonds do not include ``sweep'' provisions whereby the commercial 
bank lender ``sweeps'' any excess cash generated to reduce the 
principal of the loan. When this happens, it reduces the returns to 
equity investors and thereby makes it much more difficult to attract 
equity capital.
    3. The bond market is 10 times larger than the commercial debt 
market.
    4. Higher levels of due diligence are performed than is true with 
small lenders because a professional investment bank performs the 
underwriting and the bond investors also does similar due diligence.
    5. Loan servicing is performed by a trustee that has a higher level 
of professionalism and process technology to assure greater compliance 
and overall loan processing. In the worst case scenario of liquidation, 
these trustees are far more capable of making debt holders whole than 
is a small lender.
    The commenter proposes the bond market alternative because of the 
challenges with loans of the size needed for section 9003 projects and 
the lack of availability of lenders willing to participate. The 
additional minimum criteria in the proposed rule will make it even more 
difficult to find lenders willing to participate. The commenter 
believes that the bond market approach not only meets the criteria of 
the program as provided by the statute, but provides benefits in terms 
of lower risk to the Agency and better screening of projects.
    Response: For the reasons previously stated, the Agency can only 
consider bond financing where the lender purchases all bonds and sells 
and/or participates thereafter. In all scenarios, the lender is 
responsible and controls the servicing of the loan. In addition, the 
lender would be required to fully control any trustee related to the 
bond financing. In addition to other provisions, the Agency has tried 
to make the program more attractive to commercial lenders by revising 
the rule to allow either 20 years or useful life of the project 
(removing the ``85 percent'' provision associated with useful life), 
whichever is less, to allow more flexible terms for loans.
Special Program
    Comment: Several commenters recommend implementing a special 
section 9003 advanced biofuels guaranteed loan-bond program for the 
Gulf Coast and Eastern seaboard region to stimulate the economy ravaged 
by the recent Gulf oil spill crisis. The Go-Zone Bond funding and other 
business stimulus programs were vitally instrumental to getting these 
regions additional financial support that stimulated business creation 
and the rebuilding of the region. For the advanced biofuels industry, 
the primary feedstock that is the most reliable to date ``woody 
biomass'' is found in this same region in greater volumes than anywhere 
else in the country.
    Response: The Agency understands the commenters' concerns. However, 
the Agency wants to encourage the geographic distribution of projects 
throughout the U.S. and its territories and not tailor the program to 
specific events. The Agency notes that there are other methods to 
address specific events described by the commenter (e.g., 
Presidentially-declared disaster areas).
Demonstration Funding for Pilot and Demonstration Scale Projects
    Comment: Several commenters recommend implementing the 
demonstration funding portion of the section 9003 program to include 
pilot and demonstration scale projects providing grants under the 
section 9003 program to assist in providing additional financial 
support, because these types of projects typically do not cash flow on 
a commercial scale. This intermediate step is a vitally important one 
in developing these new technologies to the commercial stage, and needs 
funding to allow deserving, sustainable technologies to move to 
commercialization.
    Response: The statute only allows for demonstration scale projects 
to be funded with grant funding. At this time, no funding has been 
appropriated to implement a grant program.
Dairy Industry and Department of Defense Set-Asides
    Comment: Several commenters recommend setting aside special funds 
for USDA partnership efforts with the dairy industry and the Department 
of Defense (DoD). In recent months, the Agency has entered into a 
memorandum of understanding (MOU) with the dairy industry with the 
intent of developing anaerobic digester technology and providing a 
reduction of greenhouse gas emissions. This technology has not been 
fully implemented in dairies because of the high cost and low profit 
margins from currently used technologies. However, advanced integrated 
biofuels technologies have been developed that dramatically increase 
efficiencies and provide profitable returns for investor-owners. The 
Agency can assist in this effort by supporting larger projects that are 
greater than the $25 million cap in the Rural Energy for America 
Program. Utilizing a 90 percent loan guarantee for these projects, and 
low or no fees will also additionally incentivize the growth of these 
technologies in this market segment.
    The Agency also recently entered into a partnership agreement with 
the Navy to assist in developing advanced biofuels for fleets and 
vehicles. Five energy targets have been adopted by the Navy to reduce 
conventional fuel use. This will require an intense effort and 
coordination by the advanced biofuels industry just to supply the Navy 
this type of fuel, notwithstanding the RFS requirement and other 
industry needs. It is vitally important to our national security that 
the Agency can provide assistance to both the industry and the Navy in 
this effort through assisting in the development, implementation and 
financing of these new biofuels projects that must be implemented to 
meet such a demand.
    Response: The Agency is not establishing the set asides referenced 
in the comment because the Agency has adopted a policy of wanting to 
have a program that is technologically, geographically, and feedstock 
neutral. Such a set aside would provide preferences for specific 
feedstock and technologies inconsistent with this policy. The Agency 
believes that feedstock, geographic, and technology neutrality are 
critical to meeting the purposes of the program, which is to encourage 
broad-based advanced biofuel production practices, technologies, and 
feedstocks so that the best renewable energy options are supported.
    However, the Agency has added a provision to the rule to allow the 
Administrator to award bonus points to

[[Page 8420]]

applications for partnerships and other activities that assist in the 
development of new and emerging technologies for the development of 
advanced biofuels so as to increase the energy independence of the 
United States; promote resource conservation, public health, and the 
environment; diversify markets for agricultural and forestry products 
and agriculture waste material; and create jobs and enhance the 
economic development of the rural economy. The Agency will identify 
these partnerships and other activities in a Federal Register notice 
each fiscal year. Please note that the Agency is specifically seeking 
comment on this provision (see Section IV, Request for Comments).
New Technology and Commercialization
    Comment: One commenter states that there appears to be some 
confusion as to how to determine whether a new technology is ready for 
commercialization. This shows up in the requirement that pilot-scale or 
semi-work facilities will have already been built and operated as a 
means to build confidence in commercial scale rollout. For some 
technologies, this is an acceptable approach, but it is not for many 
others. As a result, the technology development leading up to the 
proposal, and whether that work provides sufficient confidence to move 
to commercial scale, should be determined as appropriate, to the 
technology being proposed. Also, if the financing team and the due 
diligence performed by them and the third party Technical Reviewer 
finds the evidence sufficient, that is a good proxy for acceptance. 
Instead, it can be a requirement of the Technology Assessment to 
express whether sufficient pre-work has been performed to warrant a 
commercial scale project. Or when a proposed project for commercial 
scale operations is of a size that could also be considered a pilot 
scale project, that such projects are equally qualified and eligible. 
Although there are many technologies that are well suited to testing 
with pilot scale facilities as a means to increase confidence in the 
technology (e.g. fermentation), oxygen gasification of biomass is not 
one of these. The commenter's commercial facility, with a proposed 
budget of $140 million, is in fact at a scale that would normally be 
considered ``pilot scale.'' The commenter states they considered 
developing a quarter-scale facility for this purpose. Unfortunately, 
the challenges of either generating or trucking sufficient oxygen to a 
quarter-scale facility drives the cost of such a facility to be 
comparable (approximately 70 percent) to the full commercial scale 
design. Also, a quarter-scale facility provides little valuable 
information in terms of scalability and therefore very little increased 
confidence for the commercial scale-up. The reason is that the fluid 
dynamics and chemistry within such a gasifier vary dramatically from 
one size to another. Operation of a smaller unit does not predict the 
actual operation of a larger unit. As a result, the design work and 
subsequent validation within the pilot facility would only prove that 
the pilot functions properly. The details of the full scale commercial 
unit will certainly be different and require its own separate 
validation. Given that the risks are similar and equally low for a 
quarter-scale versus commercial scale, it is unwise to waste that much 
money on a useless facility. More importantly, investors are not 
willing to waste that much investment on a pilot scale that provides 
little incremental value.
    Response: The Agency disagrees with the comment. The application 
must include documentation that proves the technology as proposed meets 
the definition of eligible technology. The Agency has consulted with 
technical experts and has determined that the process needs to be 
demonstrated to provide reasonable experimental data to support 
engineering scale-up with acceptable technical risk. That documentation 
includes that the advanced biofuel technology has at least a 12-month 
(four seasons) successful operating history at semi-work scale, which 
demonstrates the ability to operate at a commercial scale. Semi-work 
scale is defined as ``a manufacturing plant operating on a limited 
commercial scale to provide final tests of a new product or process.'' 
The Agency did not receive many comments concerning this issue and the 
commenter did not provide sufficient reasons for a change in policy at 
this time.
Interest Caps and Financing Structure
    Comment: To achieve the Agency's goal of leveraging Federal 
government biorefinery assistance loan guarantees and private capital 
sources to facilitate financing of biorefineries in the U.S., two 
commenters recommend considering factors not included in the NPRM that 
affect available financing of renewable energy--in this case 
biorefinery--projects. Specifically, while Federal loan guarantees 
provide greater certainty for private lenders, if interest caps on loan 
guarantees are too low, commercial lenders are just as likely to turn 
to other stable investments, such as Treasury Bills, rather than the 
desired renewable energy investments. While some commercial lenders are 
comfortable operating in the current program structure, the commenters 
believe that the industry as a whole would benefit from maximum 
competition and flexibility for lenders to negotiate business 
structures and terms that provide incentives to finance biorefineries.
    Response: The Agency has removed the proposed blended interest rate 
requirement from the rule. The Agency has revised the interest rate 
provisions to more closely match the requirements in Sec. Sec.  
4279.125 and 4287.112, while providing lenders with some flexibility in 
establishing loan type and terms on the unguaranteed portion. The 
Agency believes that this and other changes to the rule sufficiently 
address the commenter's concerns.
Grants
    Comment: One commenter recommends including grants in the program. 
According to the commenter, grants could be used as matches for other 
funding sources and would help reduce the high startup costs associated 
with the use of new technology, particularly in rural communities.
    Another commenter also encourages the Agency to include grants for 
developing and deploying new and emerging technologies that, at a 
minimum, emanate from paradigms different from the one built into the 
proposed rules, and preferably that target transformative innovations 
in rural America.
    Response: The Agency points out that grants for this program are 
authorized by statute for the development and construction of 
demonstration-scale biorefineries to demonstrate the commercial 
viability of one or more processes for converting renewable biomass to 
advanced biofuels, and are only funded under discretionary funding, 
which must be appropriated by Congress. At this time, no discretionary 
funding has been received by the Agency for the program. Therefore, 
until funds for grants are appropriated, the Agency cannot address 
grants in the program. Additionally, the authorizing legislation for 
this program would not authorize program grants being used as a match 
for another Federal grant program.
    Comment: One commenter states that the language in the rules for 
the grants authorized under Section 9003 are limited to only 
development and construction of demonstration-scale biorefineries or 
construction of commercial scale facilities based on a

[[Page 8421]]

traditional ``bricks and mortar'' paradigm. [``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.''] This language 
precludes the Agency from tapping into truly transformative 
innovations.
    The commenter further states that the Agency needs to include in 
its rules the ability to fund transformative technologies in the 
agriculture sector that support and accelerate the sustainable 
production of advanced biofuels.
    The commenter states that ag-interested/savvy venture investors do 
not truly exist in the agriculture sector. Thus, incremental 
agricultural improvements have tended to be the norm; paradigms 
producing transformative innovations in this sector are few and far 
between. The DOE views its mission in strictly narrow terms as only 
pertaining to the fuel, even though by definition biofuel includes 
agriculture. Thus, it has been funding interesting science ``fuel 
only'' focused efforts that will likely take many, many years to deploy 
at commercial scale with competitively priced output. Our urgent 
national imperative is for a domestic renewable source of liquid fuels. 
Urgency requires transformational innovation in the agricultural 
sector. The Agency is the only entity with enough knowledge and 
experience in this sector, and with a mission to revitalize rural 
America, to foster the kind of innovation that can enable 
transformation in the agricultural-related advanced biofuel sector.
    The commenter provided the following discussion to support their 
position regarding grants for innovative technology:
    (1) The new paradigm is born of a different way of thinking about 
how to solve our urgent near-term need for a thriving domestic biofuels 
industry. The new paradigm recognizes that it is really the yeast that 
produces the biofuel and thus is at the center of the ethanol 
ecosystem, and that the current yeast only produces one product--
ethanol. The facilities the existing yeast is deployed in, as a 
consequence are known as ``ethanol plants.'' The commenter utilized 
off-the-shelf biotechnology to modify the single-product yeast so it 
would multi-task. When multi-tasking yeast are deployed, producing 
ethanol and valuable co-products simultaneously, ethanol plants 
automatically become biorefineries by definition. Furthermore, since 
yeast do not care where their C6 sugar-food comes from, the 
biorefineries deploying multi-tasking yeast can use feedstock other 
than grain feedstock (e.g. stover, sorghum, grasses, etc.) to produce 
advanced biofuels. Off-the-shelf technology exists today to convert 
cellulose into C6 sugar-food for the yeast to ferment into ethanol. The 
problem heretofore has been doing so in an economically sustainable way 
from just the cellulose alone. However, the valuable co-products that 
multi-tasking yeast produce enable economically sustainable conversion 
of only the cellulose portion of cellulosic feedstock, allowing the 
hemi-cellulose and lignin to be used for heat and energy to run the 
operation in a carbon neutral manner.
    (2) When the yeast element of the biofuel system changes, all the 
other elements of that system also change. The most important change 
from switching to multi-tasking yeast is a sustainable advanced biofuel 
business model. The revenue in this new model is from the sale of 
ethanol and valuable co-products that are derived solely from the C6 
sugars converted from just the cellulose portion. The hemicellulose and 
lignin used in CHP facilities provide the heat and power to run the 
operation and generate more revenue through sale of excess electricity 
to the grid. Private capital will invest in a sustainably profitable 
business model--the key element that is missing from the biofuel funded 
efforts to date. Farmers will grow cellulosic crops when a profitable 
market exists.
    The logical sequence of events, therefore, will proceed as follows:
    a. The Agency should change the rule pertaining to grants in 
Section 9003, allowing the Agency to make ``grant(s) for the 
development of processes for converting renewable biomass to 
[sustainable] advanced biofuels.''
    b. The revised rule would allow the commenter, for example, to 
apply for a grant under Section 9003 to complete the optimization of 
its multi-tasking yeast in order to produce commercially viable levels 
of co-products in advanced biofuel biorefineries, furthering the 
fundamental intent of the rules ``to assist in the development of new 
and emerging technologies for the development of advanced biofuels.'' 
It would also enable the Agency to successfully advance its agenda to 
revitalize rural America by creating thousands of new green jobs, and 
do so at an accelerated pace.
    c. The commenter would then deploy multi-tasking yeast first in 
existing ethanol plants, where just the cellulose from cellulosic 
feedstock (initially stover because it is already grown) is converted 
to C6 sugar for the yeast to ferment.
    d. Ethanol produced in the biorefinery would be sold through 
existing channels at market prices as it is today, and the byproduct 
portion would be sold as a molasses-type material or dried and sold as 
a powder (market pricing for amino acids is quite stable), which has 
enabled computation of the $0.70/gallon of revenue.
    e. With a proven sustainable business model (by converting an 
existing ethanol plant to an advanced biofuel biorefinery), private 
capital will invest in building many new biorefineries (even without 
guaranteed loans) to expand the industry, and farmers will grow the 
cellulosic crops to meet the new market for them.
    The systemic changes also include:
    (1) No need for funding for new pilot plants to demonstrate 
viability of unproven, complex and costly technologies.
    (2) Existing designs for ethanol plants (substituting pulp mills at 
the front end for existing corn grinders) can be used for new advanced 
biofuel biorefineries, expediting deployment of these facilities at a 
lower cost, and accelerating production of advanced biofuel that can 
meet the RFS2 production levels and timeline.
    (3) Accelerated advanced biofuel production (within 24 months post 
funding) means accelerated construction and operating jobs in rural 
communities, which will enable the Agency to dramatically demonstrate 
to rural America and to Congress that it is the Agency that can make 
the transformative difference to rural America and to our domestic 
biofuels industry that the President, Congress and the American people 
voted for.
    In conclusion, the commenter advocates rules that allow an Agency-
funded transformational innovation to be developed wherever the 
resources within the United States most readily exist in order to 
expedite development and deployment, but the resulting technology must 
be deployed in rural America. If the statutory language requirement in 
the 2008 Farm Bill will not allow for inclusion of funding for 
development of agricultural-biofuels related transformative innovations 
like the one discussed above, then provision for such should be made 
clear under Sec.  4279.202(b).
    Response: The language in the statute (see section 9003(c)(1) of 
the FSRIA) states: ``grants to assist in paying the costs of the 
development and construction of demonstration-scale biorefineries to 
demonstrate the commercial viability of 1 or more

[[Page 8422]]

processes for converting renewable biomass to advanced biofuels.'' This 
language precludes the Agency from implementing what the commenter is 
requesting. Further, to the extent commenter is requesting the Agency 
to do otherwise, the Agency cannot. It is up to Congress to modify the 
statutory language in order for the Agency to consider the commenter's 
suggestions.
Simple Applications
    Comment: One commenter recommends developing a simple application 
for small biorefineries that produce less than 1,500 gallons of 
biofuels per day.
    Response: Because the program deals with new and emerging 
technologies, the Agency needs the same detailed information on the 
technology and process regardless of the size of the biorefinery. 
Therefore, a simplified application is not appropriate for the program.
Small, Mobile Biorefinery Units
    Comment: One commenter recommends giving preference to small and 
particularly mobile biorefinery units that may be better able to serve 
small rural communities on a multi-county regional basis. The commenter 
states this will help provide economic security to those communities 
through job creation and dependable sources of local energy and provide 
greater feedstock security by having the sources located in many 
different locations throughout a multi-county area instead of being 
concentrated near one centralized biorefinery.
    Response: Please note the previous response where the Agency stated 
its position to remain technologically, geographically, and feedstock 
neutral. While there is no preference given for small biorefinery 
units, they are not excluded from the program. A mobile system is 
eligible.
Unsecured Debt
    Comment: One commenter believes that the primary obstacle to this 
program is the unsecured debt requirement. According to the commenter, 
lenders are not willing to take risk in the alternative fuels industry 
given the current state of financial markets. The Agency must be 
willing to relax this rule. Options include allowing subordinate risk, 
such as a state or other credible entity, or offering a 100 percent 
guarantee under conditions when a high ratio of equity investment is 
secured, where technology risk is limited, and where there is a 
demonstrated ability to accelerate return on investment. Loan 
guarantees, like loans, should not be a ``one size fits all.'' Banks 
adjust loan terms based on conditions specific to the investment the 
loan supports. The Agency should consider adjustments when the 
potential investment offers compelling reasons to do so.
    Response: The Agency is addressing these concerns by allowing the 
subordination its lien on accounts receivable and inventory for working 
capital loans under certain conditions and guaranteeing up to 90 
percent of the loan for guaranteed loans of $125 million or less, also 
under certain conditions. As noted in an earlier response, the rule 
outlines the criteria the project must meet to obtain a 90 percent 
guarantee.

Requested Comments--f. Processing Technology Owned by Borrower

    Comment: One commenter believes that the majority of biorefineries 
will be built by entities that are not owners of the processing 
technology that will be used in the biorefineries. Thus, the commenter 
believes that the processing technology should not be counted as 
collateral or equity in the project. In the instance where the process 
technology owner is the borrower, the market value of the technology 
should not be counted in the project cost. This will lower the equity 
requirement of the borrower because the project cost will be lower. 
Thus, the commenter recommends setting the market value of the 
technology at zero, and not entering it into the calculation of the 
equity requirement, if its market value cannot be determined because it 
is a novel technology and unproven in the production of advanced 
biofuels.
    Response: With regard to process technology, the Agency agrees with 
the commenter that it should not be counted as collateral or equity in 
the project.
    The Agency agrees that the market value of the technology should 
not be counted in the project cost, because it is the Agency's intent 
to focus the program's limited funding resources on implementing the 
technology rather than developing technology. However, the Agency notes 
that technology may be considered as part of the collateral based on 
the value identified on the borrower's audited financial statement 
prepared in accordance with Generally Accepted Accounting Principles 
(GAAP) and subject to appropriate discounting as provided for in the 
rule.
    Comment: One commenter suggests using the standard discount rate of 
20 percent that is used in the B&I loan guarantee calculation.
    Response: The Agency disagrees with the commenter. Prudent lending 
practices dictate that the Agency use a discount factor, which may vary 
depending on condition and type of collateral offered. Because of the 
variability associated with the technologies participating in this 
program, discounting needs to be performed on a case-by-case basis and 
a standard, fixed discounting rate would be inappropriate. Where there 
is an existing market for intellectual property, discounting will be 
performed in accordance with the lender's standard discounting 
practice. Where there is not a market for intellectual property, the 
value of the intellectual property will be no greater than 25 percent, 
as determined by the Agency.
    Comment: One commenter suggests calculating highly skilled labor as 
a business expense on the income statement and not including it in the 
equity calculation.
    Response: The Agency agrees that highly skilled labor will not be 
included in equity calculation. However, labor is an eligible business 
expense, which could be financed with working capital.
    Comment: One commenter stated that a broad interpretation of 
``eligible project costs'' will facilitate lending and achievement of 
the purposes of the program. Because upfront transaction costs on these 
projects are significant, borrowers should receive credit for their 
contributions of real and personal property, including, without 
limitation, laboratory equipment, intellectual property, and reasonable 
fees paid to critical service providers. These fees can be substantial, 
up-front costs that are often a barrier to completing a significant 
application as is required for this program. If there is the 
opportunity to wrap these into the loan or apply them towards the 
borrower's equity contributions, additional companies with promising 
technology may choose to avail of the program as a financing mechanism.
    Response: It is the Agency's intent to focus the program's limited 
funding resources on primary project costs and, therefore, the Agency 
disagrees with the suggestion for wrapping these fees into the loan 
because the Agency does not consider these fees to be primary project 
costs. For existing biorefineries only, qualified intellectual 
property, equipment, and real property may be considered in meeting the 
equity requirement, as described in Sec.  4279.234(c)(1). The Agency 
notes that a loan guaranteed under the program may only finance 80 
percent of the eligible project costs. The borrower needs to provide 
the remaining 20 percent from other non-Federal sources to complete the 
project.

[[Page 8423]]

    Comment: Two commenters state that processing technology owned by 
the borrower should be included as an eligible project cost. Allowing 
for a means to recoup the processing technology development costs will 
speed the creation of biorefineries. It will maximize commercial 
flexibility of technology owners and project developers to negotiate 
deals that create incentives for innovation (on the part of the 
technology owner) and commercialization (on the part of the developer). 
If it is not an eligible cost, the developer will have to compensate 
the technology owner outside of the project finance structure, which 
reduces the capital that could be applied to biorefinery deployment/
retrofitting. This may significantly reduce the commercialization of 
advanced biofuels refining technologies necessary to meet the RFS as 
well as diversifying the country's transportation fuel portfolio.
    Another commenter, however, states that, while physical laboratory 
and equipment costs should be considered eligible project costs if they 
are listed as assets of the borrower, there is no legitimate value to 
intellectual property until the industry has emerged into commercial-
scale production, and, at that point, commercial values will be 
changing to meet new supplies and demands. If there is the opportunity 
to apply a portion of what the borrower perceives as the value of its 
intellectual property towards the required equity contributions, 
additional companies with promising technologies may be eligible for 
assistance under the section 9003 program. Because the documentation 
required by the Agency is no different than what a prudent lender 
should require, eligible project costs should not include any item that 
is not considered a project cost in the borrower/lender transaction 
being guaranteed.
    One commenter explains that, as a startup company with first-of-
kind technology, they have and will incur significant cost securing 
intellectual property, financing arrangements, R&D expenditures, and 
developing new forms of renewable biomass. The commenter believes these 
costs should be allowed as eligible project costs and should be applied 
to the cash equity requirements.
    Response: The Agency will not consider processing technology as an 
eligible project cost, because, as noted in a previous response, it is 
the Agency's intent to focus the program's limited funding resources on 
core project costs. However, the Agency acknowledges that the 
processing technology has collateral value and can consider the value 
of such technologies, with certain restrictions, in addressing the 
program's collateral and equity requirements.
    Comment: One commenter states that eligible costs should include 
all costs that make up a sound project including production of 
byproducts, co-products, and electricity co-generation. If a facility 
generates excess heat or other forms of energy that can be harnessed to 
co-generate power, it should be encouraged to do so because this 
activity is in keeping with the energy goals of the Agency and the 
program. Also, as long as there are investment tax credits available 
for power co-generation, these ``funds'' can have a profound positive 
impact on the financability of the project. Hence, these should all be 
included in eligible costs so that the best possible financing package 
may be brought to bear. If professional service fees include the legal 
fees and other fees are required to complete the financing, including 
the fees to the bank or investment bank, these should be allowed if 
they are to be incurred after the guarantee application has been 
submitted. These are bona fide costs of the project and should 
therefore be included.
    Response: The Agency agrees with the commenter to the extent that 
the costs associated with byproducts, co-products, and electricity 
generation are eligible project costs as provided in Sec.  4279.229(e). 
The items listed in paragraphs (e)(1) through (e)(7) of Sec.  4279.229 
are eligible project costs as long as they are integral and necessary 
parts of the total project. With regard to professional fees, the 
Agency anticipates an over-subscription of the program, so the Agency's 
intent is to focus the program's limited funding resources on core 
project costs, which are identified in the interim rule as eligible 
project costs (see Sec.  4279.229(e)).

Requested Comments--g. Percent Revenue From Sale of Advanced Biofuel

    Comment: Two commenters believe that the mandate that 70 percent of 
the revenue generated by a biorefinery must be from the sale of 
advanced biofuel will create a disincentive and turn companies away 
from the program goals. An integrated biorefinery, as described by the 
DOE, is similar to a petrochemical refinery where crude oil is 
processed into a variety of fuels and chemicals. To achieve this 
integrated biorefinery model, biofuel companies will have to go into 
production of biochemicals themselves (incurring enormous capital 
expenditure costs), or enter into a joint venture with existing 
biochemical companies that have ready-to-scale technology.
    Under the section 9003 program, a chemical production facility 
included as part of a biorefinery can have no more than 30 percent of 
the revenue generated at the biorefinery, yet the revenue generation of 
chemicals compared to fuels is traditionally disproportionately higher. 
This revenue restriction inhibits the creation of joint ventures by 
putting a cap on the future revenue of the potential biorefinery 
partner, limits the growth potential due to market demand or other 
external factors that affect the partners, and limits the ability of 
biofuel companies to enter into a revenue generating joint venture in 
efforts to become economically viable and self-sufficient in the long-
term.
    The most powerful aspect of the biorefinery as a business model is 
the ability to produce multiple products, so that the plant can weather 
prices drops, fluctuations in demand and volatile feedstock prices by 
arbitraging between the various products produced and privileging those 
that are the most profitable at any given time. If this cap exists and 
biofuels are not economically viable or require large subsidies to be 
viable, then limiting the amount of higher value-added products that 
can be produced will condemn the biorefinery to failure.
    In addition, as a practical matter, the Agency will be required to 
regulate the 70 percent revenue generation requirement on an ongoing 
basis. From the bioproduct and biochemical perspective, this is a 
revenue limitation of 30 percent. Limiting revenue generation of one 
component of a business within a free enterprise is questionable 
policy. The Agency does not have a rational basis for this limitation 
grounded in sound economics, nor does it serve the broader policy 
purposes of the program. Biofuels and bioproduct companies should not 
be limited in revenue for any reason. The U.S. economy and its 
taxpayers will only reap the benefits of biorefineries if they are 
profitable ventures. They should be free to innovate new business 
models in order to achieve sustainable success.
    One commenter agrees that the intent of the program is to create 
biorefineries that produce advanced biofuels, but believes that the 70 
percent requirement is too high. The commenter believes that as long as 
35 percent or more of the revenue is from the sale of advanced 
biofuels, then the project should be eligible for the program.
    One commenter states that the advanced biofuels industry is an

[[Page 8424]]

emerging market and, as such, many configurations for profitability and 
risk mitigation include the sale of byproducts and renewable 
electricity as major components of the profit and product streams. 
There should be no set standards for the production of the advanced 
biofuels, and to require that 70 percent of the revenues are from the 
sale of advanced biofuels adds a further artificial barrier on sound, 
sustainable projects. The requirement should be lowered to 50 percent 
and be a combination of all forms of energy, including renewable 
electricity.
    One commenter states that it is important that new fuel production 
methods pass through the financing ``Valley of Death'' so that they can 
be replicated in the market without government financial assistance. 
Hence, whether a first of a kind project under section 9003 sells much, 
if any, advanced biofuel should be irrelevant as long as the proposed 
business plan is financeable and there is sufficient evidence that 
there is a market (or emerging market) for the proposed fuel. Thus, 
more new technologies will be financed and more new advanced biofuels 
will ultimately come to market. Because even the small number of 
section 9003 eventual winners will have a negligible total impact on 
U.S. fuel consumption, it is more important to set the stage for future 
growth rather than saddle these early stage projects with excessive 
hurdles to overcome to create a successful business plan for a first 
commercial project. As long as the borrower can explain cogently how 
future plants will produce and deliver advanced biofuels and 
bioproducts that mitigate imported fuel or energy intensive products, 
these should be equally rewarded in this program.
    One commenter agrees that the program should be focused on projects 
that primarily produce advanced biofuels, and encouraged the Agency to 
make a determination of the nature of the project on a site-specific 
basis and not promulgate a bright-line threshold. BTL (benzene, 
toluene, and xylenes) facilities can be configured to produce various 
combinations of fuels, co-products, and electricity. Thus, it may be 
that an optimized plant on an efficiency basis would be configured for 
something marginally less than 70 percent revenue from advanced 
biofuel. While a plant could be configured to meet a 70 percent 
requirement, the commenter asks that the Agency provide flexibility to 
allow for the most efficient plant configurations, which would be 
consistent with the proposal to consider life-cycle GHG emissions and 
other performance criteria.
    Two commenters state that, while the Agency has proposed to require 
a certain percentage of biofuels be produced at the facility receiving 
an Agency loan guarantee, other product streams from the same feedstock 
can enhance the economic viability of biofuel projects. Market forces 
will affect revenues based on ever-shifting price points. Thus, a 
requirement for a percentage of revenue would make financial and 
operational planning very difficult for a biorefinery that receives a 
loan guarantee. An energy content or biomass usage metric is more 
effective, allowing developers to plan their facility/project at the 
outset to ensure that a certain percentage of the energy or biomass is 
used for biofuels. The commenters recommend basing any required 
percentage related to biofuel production on energy content or biomass 
usage, not revenue. The commenters also urge the Agency to promulgate 
flexible guidelines to implement this approach at this stage of 
development and uncertainty in the biofuels market.
    Response: The Agency agrees with commenters' suggestion to remove 
the 70 percent revenue threshold. The rule has been modified to require 
that a majority of the biorefinery production is an advanced biofuel. 
When the biobased product and any byproduct produced have an 
established BTU content from a recognized Federal source, majority 
biofuel production will be based on BTU content of the advanced 
biofuel, the biobased product, and any byproduct. When the biobased 
product or any byproduct produced does not have an established BTU 
content, then majority biofuel production will be based on output 
volume, using parameters announced by the Agency in periodic Notices in 
the Federal Register, of the advanced biofuel, the biobased product, 
and any byproduct.
    The Agency has determined that measuring the output is a better 
metric than the energy content of the biomass input in determining 
project eligibility, because the energy value of biomass input is not 
necessarily equivalent to the energy product outputs. The primary 
purpose of the program is for the development of advanced biofuels. For 
these reasons, the Agency is focusing on production of advanced 
biofuels rather than consumption of feedstock.
    Comment: One commenter recommends changing the facility's 
percentage of ``revenue'' that must come from advanced biofuels to a 
percentage of ``volume'' in order to enable a company to maximize the 
economic viability of its operations. The commenter believes basing the 
percentage requirement on revenue, and not volume, significantly 
inhibits a company from pursuing its maximum economic potential as the 
prices of many byproducts are greater than fuels. The commenter 
believes that changing this requirement to 70 percent of volume will 
still enable the Agency to pursue its goal of promoting advanced 
biofuels without unduly restricting companies from pursuing the most 
economically advantageous means of supporting their facilities.
    Private financing entities will judge whether ``facilities are 
worth financing'' solely based on the economic potential of that 
facility to earn sufficient profits to be able to pay back the loan to 
the financing entity as well as pay returns to its equity holders. 
Therefore, any regulations should be structured such that they will 
facilitate the manufacturing plant achieving maximum profits and 
enhancing its economic viability. The Agency itself recognizes the 
value of multiple revenue streams that exist in a biorefinery 
operation. For example, the Agency states that ``byproducts are an 
important revenue source for many biorefineries.''
    To provide an example: The commenter's process inherently produces 
byproducts at a certain level. Monetizing these byproducts 
significantly enhances the financial viability of a biorefinery 
facility. As an example, one of the byproducts is an organic acid that 
sells for more than $2,000/ton, significantly more than the value of 
ethanol. Under a revenue-based eligibility requirement, the commenter 
states they would be significantly restricted from monetizing this 
byproduct, which is currently made exclusively from fossil fuels. Since 
this acid sells for more than 3 times the value of ethanol, the 
commenter states they would only be able to sell very small amounts in 
a revenue-based scenario, losing not only the revenue and societal 
benefit of replacing a fossil fuel derived material, but also incurring 
a cost to dispose of the material. In a volume-based scenario, the 
commenter states they would still focus on producing advanced biofuels 
as the primary purpose of the facility, but also would be able to 
enhance the economics of the facility by realizing the value inherent 
in its processes' byproducts.
    Response: As noted in the response to the previous comment, the 
Agency is replacing revenue as the standard of measurement and instead 
will determine the majority biofuel production based on BTU content of 
the advanced biofuel, biobased product, and any byproduct. However, if 
the biobased

[[Page 8425]]

product or any byproduct does not have an established BTU value, the 
Agency will determine majority biofuel production based on output 
volume of the advanced biofuel, the biobased product, and any 
byproduct.
    Comment: One commenter states that the 70 percent requirement is 
not contained in Section 9003 and may cause significant problems, both 
in terms of deterring companies from using the section 9003 program and 
then increasing the chance of default if a loan guarantee is issued. 
The commenter recognizes that the primary purpose of Title IX is 
``Energy''; however, Title IX also recognizes that, like petroleum, co-
products provide essential revenue streams. Liquid transportation fuel 
has been the ``holy grail'' of the algae industry since its inception, 
but many companies are shifting their business plans away from a fuel-
dominant approach in the short term and dedicating more efforts to 
developing higher-value co-products such as chemicals, agricultural 
soil remediation and fertilization, and plastics. This has been driven 
primarily by high production costs for lipids and having to compete 
with low-cost crude oil. One of the primary reasons for the high 
production costs of algal-based fuels is the lack of commercial-scale 
(and even demonstration-scale) projects that provide opportunities to 
optimize and de-risk technologies and reduce costs with scale. The 
algae industry views the section 9003 program as a much-needed 
financing tool to develop projects and bring down costs and risks. As 
the Agency notes, ``byproducts are an important revenue source for many 
biorefineries.'' They will be even more important for the long-term 
success of the algae industry and the ability of the industry and its 
technologies to mature to the point where algal-based liquid 
transportation fuels are price competitive with petroleum gasoline, 
diesel or jet fuel.
    For this reason, the commenter strongly encourages the Agency to 
interpret the purposes of Section 9003 broadly and in a way that will 
most likely accelerate the ultimate development and production of 
advanced biofuels. Imposing a 70 percent revenue requirement defeats 
this purpose.
    First, it is unclear what the ramifications would be to the 
applicant if, in practice, this 70 percent threshold was violated. 
Would this constitute a default under the credit facility or security 
agreement? If so, this injects an artificial limit into the operation 
of projects that may, at points, obligate the applicant to run the 
project in a commercially unreasonable or imprudent way by producing 
products that fail to provide sufficient revenue to meet debt service.
    Second, and related to the first, it is much more difficult to 
control price for a product (unless long-term off-take contracts are in 
place) than volume produced. Price fluctuations may inadvertently cause 
a breach of any loan agreement or security document.
    Third, there is a significant pricing differential for feed, 
nutraceuticals, bioplastics, and biochemicals compared to fuel. This 
pricing differential could distort financial models and disqualify 
early algae projects that will rely on co-product sales to make the 
fuels portion of the project ``pencil out.'' Borrowers should not be 
penalized for capitalizing on multiple value streams. If any limit on 
product mix is imposed, this should be volumetric rather than revenue-
based.
    Fourth, Section 9003 imposes no such specific threshold for 
purposes of a biorefinery's eligibility for the section 9003 program. 
Section 9003 provides that ``eligible technology'' for purposes of 
qualifying for a loan guarantee is ``technology that is being adopted 
in a viable commercial-scale operation of a biorefinery that produces 
an advanced biofuel'' as well as ``technology * * * that has been 
demonstrated to have technical and economic potential for commercial 
application in a biorefinery that produces an advanced biofuel.'' 
Nothing in this sentence requires anything more than a biorefinery to 
produce some quantity of advanced biofuel, and it certainly doesn't 
base a requirement on a percentage of revenue. Further, a 
``biorefinery'' is defined as a ``facility (including equipment and 
processes) that ``(A) converts renewable biomass into biofuels and 
biobased products; and (B) may produce electricity''. On the face of 
the statute, Congress did not require a project's eligibility to be 
based on production and sale of a specific product mix or revenue mix, 
and biobased products and electricity are specifically anticipated to 
be key attributes of any biorefinery. The Agency's exercise of 
administrative discretion on this issue goes too far and jeopardizes 
the success of a much-needed program.
    This limit on the revenue mix from products produced by the project 
is counterproductive to the purpose of the section 9003 program. 
Imposing an arbitrary limit on the product and revenue mix unsupported 
by Section 9003 will negatively affect borrower's ability to make 
prudent business choices and maximize revenues based on market demand 
for certain products at any given time during the loan term. This is 
not in the lender's best interest, it is not in the borrower's best 
interest, and it is not in the taxpayer's best interest when the 
borrower defaults.
    The commenter recommends considering the merits of (most desirable 
to least desirable): (i) Completely eliminating this requirement for 
project eligibility in favor of a certification by the borrower that 
the primary purpose of the project over the term of the loan is the 
production of advanced biofuels; (ii) imposing a volumetric requirement 
rather than a revenue requirement with the volumetric requirement being 
a ``majority'' rather than 70 percent; (iii) reducing the 70 percent 
revenue threshold to a ``majority''; (iv) providing a waiver process to 
avoid default; and (v) permitting the carry-forward and carry-backward 
of surpluses and deficits so that the 70 percent revenue requirement is 
imposed over multiple years.
    In any event, the commenter encourages the Agency to clarify its 
intent here and the ramifications for failing to meet such a 
requirement, and recommends either discarding the 70 percent revenue-
from-fuels requirement or completely restructuring this requirement.
    Response: For program integrity the Agency cannot rely just on 
certifications. As has been noted in the responses to the two previous 
comments, the Agency is replacing revenue as the standard of 
measurement and instead will determine the majority biofuel production 
based on BTU content of the advanced biofuel, biobased product, and any 
byproduct. However, if the biobased product or any byproduct does not 
have an established BTU value, majority biofuel production will be 
determined based on output volume of the advanced biofuel, biobased 
product, and any byproduct. The Agency has also removed the 70 percent 
threshold and replaced it with a majority threshold. Based on the 
changes, the Agency has determined that a waiver process and the carry 
of revenue surpluses and deficits are not required. The Agency reserves 
the right to take any legal action to address default when the borrower 
is not operating as originally proposed.
    Comment: One commenter believes that biobased chemicals and 
biobased products must be included in grant, loan, and loan guarantee 
programs under the section 9003 program to enable stand-alone 
commercial scale facilities. Currently, most, if not all, large funding 
advantages in the DOE and USDA biomass program are

[[Page 8426]]

available to biofuels production projects only (with one exception). 
Expanding funding programs to include production of biobased chemicals 
and products will enable shovel ready projects that are the 
cornerstones of new biobased industries to immediately take hold. The 
2008 Farm Bill states clear objectives for our nation yet these 
programs exclude loans, loan guarantees and grants for biochemical and 
biobased material production that would immediately enable these goals. 
The commenter believes the U.S. cannot afford to miss an economic and 
environmental opportunity for ready to scale green technology that 
falls well within the parameters of 2008 Farm Bill concerns.
    Response: The Agency disagrees with commenter. The purpose of the 
program, as provided in the statute, is to assist in the development of 
new and emerging technologies for the development of advanced biofuels. 
Pursuant to the statute, all biorefineries financed under the program 
must produce advanced biofuels.

Requested Comments--h. Value of Feedstock Supplied by Producer 
Association and Coops

60 Percent Threshold
    Comment: One commenter strongly opposes the proposed 60 percent 
threshold. The advanced biofuel feedstock markets, particularly for 
algae and cellulosic ethanol, are immature and have not developed to 
date using the agricultural cooperative model. Given transportation 
costs and other logistical issues, algal feedstock will likely be grown 
by the same companies that harvest the lipids/triaclglycerides and 
convert the same to advanced biofuels or other biobased products at the 
same or an adjacent site.
    While the commenter encourages and supports the premise that 
``algae is agriculture,'' the commenter urges the Agency to avoid 
making the same mistakes that Congress and other agencies have made in 
the past when crafting legislation or policy with traditional 
agricultural food crops in mind. The Agency should not impose an 
existing model on a new industry at this point in its development, 
despite the fact that cooperatives and producer associations have 
served the terrestrial agricultural industry well. To do so in terms of 
awarding points when scoring applications would severely disadvantage 
biorefineries seeking to use algal feedstock (and other feedstock) vis-
[agrave]-vis other projects that would, for example, use corn stover, 
cobs, straw, sugar, or other cellulosic feedstock.
    The commenter recognizes the requirements in Section 9003(e)(1)(C) 
and the critical importance of producer associations to the development 
of the agriculture industry in the U.S.; however, the commenter urges 
the Agency to avoid imposing existing models on new industries. 
Disproportionate benefits should not be afforded to certain business 
structures that may be inapplicable to certain sectors of the bioenergy 
industry. The commenter states that the Agency should minimize such 
benefits.
    One commenter states that, because most producer associations and 
coops are not yet involved with nor have a track record in feedstock 
procurement and supply, a lender will generally consider such contracts 
to be unreliable and likely unfinancable. This proposed criterion 
should be dropped in its entirety so as to allow projects to procure 
reliable feedstock wherever possible so that pre-commercial 
technologies can be built and validated. Do not add this level of 
complexity. It will almost certainly render most projects ineligible 
and would be a travesty for the program.
    Three commenters state that the Agency should not place limits on 
feedstock suppliers in order to qualify for this program. Feedstock 
availability and price basically determine the success of the plant and 
maximum flexibility should be awarded in order to maximize the 
opportunity for success.
    Several commenters state that a 60 percent threshold is unrealistic 
and, at this time, presents an artificial restriction for good, 
bankable projects. The commenters state that woody biomass is currently 
the lowest cost, most dependable, and most accessible feedstock for 
large-scale commercial advanced biorefineries, and is not traditionally 
owned, managed, or harvested by producer associations and/or 
cooperatives. The commenters support the activities of producer 
associations and cooperatives in developing advanced biofuels 
facilities and/or supplying biomass to these facilities, but state that 
the current costs and lack of infrastructure to economically and 
sustainably supply the facility with crops, such as miscanthus or 
energy cane, at a price comparable to woody biomass restricts the 
project from providing the necessary base level of feedstock pricing 
support that makes this type of business model bankable in the near 
term.
    Response: The Agency appreciates the commenters' concerns. However, 
the statute requires the Agency to consider whether the borrower is 
proposing to work with producer associations or cooperatives. The 
Agency has modified this criterion to award points if the project can 
document working with cooperative and producer associations under one 
of the three criteria rather than all three. In addition, this scoring 
criterion has been revised by incorporating a two-tiered system that 
begins awarding points at a 30 percent threshold.
Algae Exception
    One commenter states that they reviewed several proposals from 
potential algae producers to build out 10 to 100 acre algae production 
facilities that could provide a minimum of approximately 10,000 gallons 
(235 barrels) per acre/year, and over a million gallons of biomass per 
acre/year on a totally renewable basis without having to address 
growing seasons, rainfall and other factors that crop farmers must 
consider. Due to these considerations and the land use requirements of 
other feedstock, this would be practical, but due to the de minimus 
land requirement for algae production, the commenter does not believe 
that this is a practical restriction and requests that an exception be 
granted for algae production.
    Response: The Agency disagrees. The Agency has adopted a policy to 
have a program that is technologically, geographically, and feedstock 
neutral. As noted in the response to the previous comment, the Agency 
points out that the rule has been revised to award points if the 
project can document working with cooperative and producer associations 
under one of the three criteria rather than all three. In addition, 
this scoring criterion has been revised by incorporating a two-tiered 
system that begins awarding points at a 30 percent threshold.

Requested Comments--i. Measuring Potential for Rural Economic 
Development

    Comment: One commenter believes that the scoring system is flawed 
in regard to rural economic development. In large states, such as 
Texas, the requirement that the average wage created by the project be 
above the county and state median household wage will greatly affect 
project scoring compared to a small state since the Texas median state 
wage may be significantly higher than the county median wage. If a 
project's average wage is above the median household wage in the county 
and contiguous rural counties, then the project should receive the 
points for this criterion. Rural counties would be defined in this 
instance to be all nonmetropolitan

[[Page 8427]]

counties, as defined by ERS, with a rural-urban continuum code of 4 
through 9. The commenter believes, however, that this criterion should 
be worth 15 points and not the 5 points in the proposed rule.
    Response: The Agency has considered the comment and revised the 
criterion to reflect the location of the project (must be in a rural 
area in order to be awarded points) and County median household wage 
only. The Agency agrees that the points for this criterion should be 
increased, and has increased the points from 5 to 10, which the Agency 
has determined is appropriate relative to the other scoring criteria.
    Comment: One commenter states that standard economic impact 
analysis software is easily obtained through several private 
organizations and universities, and has often been used to judge the 
economic impact of a new business in a community. The key components 
that can be compared are number of direct and indirect jobs created, 
the area multiplier effect, and the impact of purchases of local goods 
and services, including feedstock.
    One commenter states that when measuring the potential impacts on 
rural economic development, the easiest things to measure are:
1. Construction Phase
    a. Amount of construction funds that will be spent in the local 
area and immediate region for equipment, supplies, labor and other 
support services.
    b. Downstream effects of construction job spending on the local 
economy, which is generally a multiple of the primary spending 
(velocity of money).
2. Operations Phase
    a. Number of new jobs and salaries to be paid plus the downstream 
effects that these employees will have on spending in the local 
economy.
    b. Feedstock purchases. Determine who gets paid and how much in the 
feedstock supply chain in the local area. In some cases these will be 
estimates, but given that the feedstock supply chain must be fairly 
transparent to meet lender requirements, these estimates can be quite 
accurate.
    Response: The Agency does not agree with changing the economic 
impact analysis at this time. The Agency has not identified the 
appropriate models to determine the economic impact in the manner 
suggested by the commenter. If the Agency identifies an appropriate 
model, it will amend the regulation accordingly and notify the public.

Requested Comments--j. Measuring Positive Impacts

    Comment: One commenter believes that the production of advanced 
biofuels will have positive impacts on resource conservation, public 
health, and the environment. The commenter believes the Agency should 
rely on the definition of advanced biofuels as defined in the 2008 Farm 
Bill and believes EPA is using unproven combinations of models to 
calculate the GHG reduction for biofuels. Also, EPA's delay in 
qualifying existing and new feedstock and process pathways will not 
allow for quick implementation of the program. There could be instances 
where a feedstock could be under review until 2012 by EPA--the 
expiration of the current Agency program.
    Dependence by the Agency on the RFS2 definitions and delineations 
is premature. Once the science behind GHG emissions is more fully 
understood and defined, then the Agency may want to look at including 
some tiered system to determine the environmental positive impact. The 
commenter suggests that this could be a much more appropriate 
discussion as the 2012 Farm Bill takes shape.
    The commenter states that a tiered scoring system based on GHG 
reductions would not further the intent of the program and not help 
rural economies through the creation of advanced biorefineries. 
However, the commenter believes that a project should show a reduction 
in GHG emissions as verified through a life-cycle analysis in the 
published literature or completed by a university or a private third 
party that specializes in such analysis.
    Response: The Agency agrees with the commenter, and requires that 
the project produce an advanced biofuel as defined in the statute. The 
Agency has decided not to require compliance with the Renewable Fuel 
Standard, because to do so would narrow the range of feedstocks 
eligible under this Program. Furthermore, the renewable fuel standards 
only apply to liquid transportation fuels, while this Program applies 
to a broader range of advanced biofuels. However, the Agency has 
modified the scoring criteria such that in order to receive points 
under the first scoring criterion an advanced biofuel must meet an 
applicable renewable fuel standard as identified by the EPA and 
clarified the scoring criterion associated with demonstrating positive 
effects that compliance with the renewable fuel standard is one way 
that a positive effect on the environment can be demonstrated.
    With respect to the commenter's concern about GHGs, the Agency 
encourages applicants to provide any and all information that supports 
a positive effect on resource conservation, public health, and the 
environment. The Agency considers a reduction in life-cycle GHGs to be 
a positive effect on the environment. Thus, if the borrower 
demonstrates a reduction in life-cycle GHGs, the borrower will receive 
points under Sec.  4279.265(d)(6). However, a borrower will also 
receive points under this criterion if they demonstrate a positive 
effect on resource conservation, public health, or the environment in 
another manner. Finally, to help address GHG life-cycle emissions, the 
Agency has revised, as noted above, the scoring criterion such that an 
advanced biofuel must meet an applicable renewable fuel standard as 
identified by the EPA in order to receive points under the first 
scoring criterion.
    Comment: One commenter states that eligible projects should provide 
a reduction in GHG reductions, as verified through a GREET Analysis or 
other university or private, third party analysis. The project should 
also meet or exceed the EPA standards for permitting. Extra points 
should be given for projects that provide additional clean, potable 
water for human use and/or irrigation.
    Response: Applications will be accepted for biorefineries that 
produce an advanced biofuel. The Agency is considering the impacts of 
the EPA requirements on the program and has not made a final 
determination to date. As noted in the response to previous comments, 
to help address GHG life-cycle emissions, the Agency has revised the 
first scoring criterion such that an advanced biofuel must meet an 
applicable renewable fuel standard as identified by the EPA in order to 
receive points under the first scoring criterion.
    With regard to the comment on potable water, the Agency encourages 
applicants to provide any and all information that supports a positive 
effect on resource conservation, public health, and the environment. 
The Agency may consider potable water under this criterion, for example 
resource conservation. Thus, if the borrower demonstrates positive 
impact GHGs or potable water, the borrower may receive points under 
Sec.  4279.265(d)(6) and, as noted above, the advanced biofuel must 
meet an applicable renewable fuel standard as identified by the EPA to 
receive points under the first scoring criterion. However, the Agency 
has chosen to provide applicants more options in demonstrating a 
positive effect on

[[Page 8428]]

resource conservation, public health, or the environment.
    Comment: One commenter agrees that biofuels and bioproducts that 
significantly reduce greenhouse gas emissions are more desirable than 
those that do not. Such criteria also ensure that the net energy 
balance of the proposed fuels or products is higher, which in turn 
reduces imported energy products to a higher degree. Hence, such a 
measurement is consistent with the overarching goals of the program. 
Fuels and products that can be produced with low overall water 
consumption should also score higher. Given that most fossil fuels 
require water for production and to date most biofuels require 
dramatically higher uses of water, which is unsustainable, low water 
consumption should be considered to be one of the highest and most 
important criteria.
    One commenter recommends structuring the loan guarantee program to 
promote the best-performing biofuels to the maximum extent possible and 
``pay for performance.'' As one of the purposes of the program is to 
``promote resource conservation, public health and the environment,'' 
the commenter encourages the Agency to link the loan guarantee 
application scoring criteria to the entire performance profile of the 
advanced biofuel proposed to be produced.
    The commenter believes that, while the assessment of the GHG 
performance of fuels, as well performance relating to air quality, 
water quality, and water quantity are all important aspects of the 
performance profile of a fuel, the Agency should assess other important 
factors, such as the compatibility of fuels with existing 
infrastructure and equipment and the total thermal efficiency of the 
facility, among other relevant factors. Linking payments to the 
achievement of GHG reduction thresholds under EPA's RFS2 program, as 
suggested in the proposal, would certainly help to achieve the goal of 
reducing GHG emissions.
    While supporting consideration of life-cycle GHG reductions, the 
commenter encourages the Agency to fill existing policy gaps and 
maximize GHG reductions from biofuels by scoring proposed projects on 
the full life-cycle reductions actually anticipated based on a site 
specific life-cycle analysis, not merely on the basis of achieving 
minimum thresholds. The existing RFS2 program only requires that 
biofuels meet specific thresholds (such as a 60 percent reduction for 
cellulosic biofuels), but the program offers no incentives for 
producers to exceed those thresholds. Conversely, low-carbon fuel 
standards being developed by California and the Northeastern states 
encourage maximum reductions by fully crediting the reductions 
achieved. Under such an approach, a facility producing a fuel with a 90 
percent GHG reduction benefit would score comparatively higher than a 
facility producing a fuel that merely meets RFS2 thresholds. The 
commenter encourages the Agency to adopt a similar approach that would 
best help the Agency achieve incremental GHG reductions and support the 
Administration's goal of reducing GHGs.
    One commenter states it is important to remember that the industry 
must fulfill the advanced biofuel requirement of the RFS. The commenter 
believes that, if the Agency decides to award points towards an overall 
score that will then be used to evaluate and compare applications for 
facilities that produce biofuels that significantly reduce life-cycle 
GHG emissions compared to conventional fuels, the regulations should be 
kept simple to encourage streamlined administration of the program. 
While the commenter does not believe that the indirect land use change 
calculations included in the RFS regulation are mature or have been 
adequately vetted in the scientific community, if the Agency does 
include life-cycle GHG emission reduction benchmarks as a way to reward 
lower emitting fuels with additional points, the commenter recommends: 
(1) Relying on already established regulations instead of creating a 
new set of regulations for those calculations (i.e., EPA RFS), and (2) 
Not complicating the program with multiple threshold levels that the 
Agency will need to create and monitor, but simply create one value (5 
points) for advanced biofuels that meet the RFS life-cycle GHG emission 
reduction requirements.
    Response: In addition to the reasons already provided, the Agency 
also notes that it agrees with simple implementation of this scoring 
criterion and encourages applicants to provide information that 
supports a positive effect on resource conservation, public health, and 
the environment. The applicant can consider a recognized and published 
source of information to document the impacts noted above. The Agency 
has increased the amount of points under this scoring criterion and 
added provisions to deduct points if the feedstock can be used for 
human or animal consumption.
    Comment: Regarding suggested metrics for the other proposed 
performance criteria, in assessing air quality, one commenter 
recommends looking at conventional pollutant emissions of a fuel as 
compared to a baseline represented by the fuel it replaces. For water 
quantity, fuels could be scored on water use in production per BTU of 
energy produced. Fuels could be scored on the basis of the fertilizer 
use and runoff related to their feedstock.
    Despite requesting comment on many performance criteria, the Agency 
has proposed to reduce the points allocated to these criteria in its 
ranking scheme. Rather than reducing the points, the commenter believes 
it would be appropriate for the Agency to substantially tailor the 
scoring system around such criteria.
    Response: The Agency agrees that the metrics identified by the 
commenter can be used to demonstrate the impacts of a biorefinery. 
However, the Agency disagrees that it is necessary to identify these 
metrics specifically in the rule. This criterion is written broadly to 
allow applicants to provide whatever information the applicant believes 
will demonstrate the positive impacts of their proposed projects. Thus, 
the Agency encourages applicants to provide any and all information 
that supports a positive effect on resource conservation, public 
health, and the environment. The applicant can consider a recognized 
and published source of information to document the impacts noted 
above. As noted in the response to the previous comment, the Agency has 
increased the amount of points under this scoring criterion and added 
provisions to deduct points if the feedstock can be used for human or 
animal consumption.
    Comment: Two commenters encourage the Agency to coordinate with the 
DoD to ensure that any requirement regarding the reduction of life-
cycle GHGs does not inhibit DoD's goal of increasing the amount of 
domestically-produced jet fuel. The Agency should ensure that 
facilities that could provide such fuel are not ineligible for the 
program based on how GHGs are calculated on a life-cycle basis. The 
commenters support program incentives that reduce life-cycle GHGs as 
technologies advance, but recommends that national security benefits be 
considered for the eligibility of biofuel programs.
    Response: Although the statute does not require the Agency to 
consider national security as an eligibility requirement, the Agency 
recognizes the importance of biofuels to national security and has 
signed a MOU with the Navy. The MOU encourages the development of 
advanced biofuels in order to secure the strategic energy future of the 
United States and will be

[[Page 8429]]

supported by the Agency to the extent possible. Further, as noted in a 
response to a previous comment, the Agency has included in the rule a 
provision, for which it is seeking comment, to allow the Administrator 
to award bonus points to applications that promote partnerships and 
other activities that assist in the development of new and emerging 
technologies for the development of advanced biofuels that further the 
purpose of this Program, as stated in the authorizing legislation. The 
Agency will identify these partnerships and other activities in a 
Federal Register notice each fiscal year. Therefore, the Agency has 
determined that it is unnecessary to add the suggested scoring 
criterion to the rule.
    Comment: One commenter urges the Agency to ensure that the program 
is flexible so that a producer can reapply in order to meet the higher 
criteria for the same project as it evolves. Liquid biofuels are the 
only advanced biofuels that currently have a regulatory framework in 
place for measuring GHG emission reductions compared to their 
counterparts. If the definition of advanced biofuels in the final rule 
applies to solid, liquid, or gaseous fuels, the Agency would need to 
determine how they will quantify gaseous and solid advanced biofuels 
emission reductions when compared to their counterparts. In addition, 
it should be assumed that producers of advanced liquid biofuels would 
not produce fuels that do not meet the RFS qualifications, therefore, 
including life-cycle GHG emission reduction requirements in this 
program for liquid transportation fuels would be redundant and the 
commenter cautions against adding any unnecessary regulations to this 
program that could slow or complicate the process of awarding 
guarantees and therefore retard commercialization and production.
    One commenter supports the approach the Agency is considering that 
would award more points to facilities that produce biofuels that 
significantly reduce life-cycle GHGs compared to conventional fuels. 
Drafting language to incorporate the EPA's renewable fuels standard and 
ongoing biofuels life-cycle analysis (in partner with the National 
Academy of Sciences) would structure the rules effectively. Given the 
need to address climate change, awarding points is a practical step in 
fostering development of emission-reducing feedstock production.
    One commenter supports basing scoring criteria on life-cycle 
assessments and encourages the Agency to employ established methods 
being utilized by other agencies (e.g., the U.S. EPA). If the section 
9003 program is a means to achieve the ends required by the RFS 
Program, then requirements imposed on borrowers as producers of 
renewable fuel for sale to obligated parties should be synchronous.
    Response: The purpose of the program, as provided in the statute, 
is to assist in the development of new and emerging technologies for 
the development of advanced biofuels. The Agency is currently 
considering various models related to life-cycle analysis and has not 
identified a model at this time. When the Agency determines the 
appropriate model, it will amend the rule accordingly. As stated above, 
the Agency encourages applicants to provide any and all information 
that supports a positive effect on resource conservation, public 
health, and the environment and, to help address such environmental 
considerations as GHG life-cycle emissions, the Agency has revised the 
scoring criteria such that an advanced biofuel must meet an applicable 
renewable fuel standard as identified by the EPA in order to receive 
points under the first scoring criterion.

Requested Comments--k. Definition of Agricultural Producer

    Comment: Two commenters recommend keeping the definition of 
agricultural producer as proposed. According to the commenters, there 
is no advantage increasing this guideline, which will put another 
artificial barrier or restriction in place to qualifying producers. The 
definition should be consistent across all areas of Agency funding 
programs.
    Response: The Agency thanks the commenter for their comments and 
the Agency has decided not to change the definition.

Requested Comments--l. Local Ownership

Distance
    Comment: Two commenters recommend increasing the mileage allowance 
to 200 miles. The project must be economically and financially 
sustainable, and could require feedstock procured and obtained from a 
larger area. The most economically advantageous site may be located 
away from the owner's business or home location. This is another 
artificial barrier that must be removed from the process.
    Two commenters recommend that, if the Agency insists on providing a 
benefit to locally owned companies, this should be increased to 200 
miles from 20 miles. This required scoring criteria, like the producer 
association scoring criteria, benefits certain sectors of the bioenergy 
industry and not others and actually serves as a way for producer 
associations to get ``double points'' for the same thing. Owners of 
companies developing large-scale algae growth and cultivation 
biorefineries, unlike their counterparts using corn stover or wheat 
straw, will likely be located far from these production facilities due 
to the fact that these facilities are best located in areas where 
terrestrial agriculture activities requiring fresh water would be 
impossible.
    To reduce possible double benefits for producer associations in the 
scoring criteria and to more realistically account for project finance-
type investment by funds with urban domiciles into these $100+ million 
facilities, the commenter recommends basing ``local ownership'' on 
owners living either within the state in which the project is located 
or 200 miles.
    One commenter states that the 20 mile limitation for local 
ownership is too restrictive. Many of these facilities will have to be 
located in larger communities that have essential infrastructure to 
service them, which could easily be more than 20 miles from the source 
of the feedstock. Also, many of these facilities will be utilizing 
specialized feedstock that may have to be obtained from further 
distances. The commenter recommends that 100 miles be used to determine 
local ownership.
    Response: In the definition of local ownership, the Agency has 
replaced the feedstock supply area provision with the distance an 
owner's primary residence is from the location of the biorefinery, with 
the distance to be specified by the Agency in a Federal Register 
notice. The Agency is seeking comment on this provision (see Section 
IV, Request for Comments). It is the Agency's intent to implement in 
the final rule for this Program a specific criterion, or set of 
criteria, to establish such distance or distances for defining a local 
owner. The Agency plans on using the input provided in response to the 
requested comment in finalizing this definition for the final rule.
    Comment: One commenter agrees with the local owner definition 
requiring a local residence in proximity to the feedstock area. The 
commenter, however, recommends strengthening the phrasing ``an 
individual who owns any portion'' to say an individual who owns a 
specific minimum dollar amount or percentage. Otherwise, the provision 
could be open to abuse.
    Response: The Agency disagrees with the recommendation, and wants 
to clarify that local ownership will be determined based on the 
percentage of ownership of the biorefinery rather than

[[Page 8430]]

on the number of owners. The Agency would like to be as inclusive as 
possible and consider all local ownership interests instead of setting 
a minimum dollar or percentage threshold.
Scoring
    Comment: One commenter believes there should not be more than 5 
points allotted for local ownership.
    Another commenter states that local ownership is important, but not 
as important as the jobs created in the rural economy where the 
biorefinery will be placed. The commenter does not support the scoring 
system in regards to this criterion. The commenter proposes the 
following criterion with a maximum of 10 points:
    1. If more than 20 but less than or equal to 50 percent of the 
biorefinery's owners are local owners, 6 points will be awarded.
    2. If more than 50 percent of the biorefinery's owners are local 
owners, 10 points will be awarded.
    3. A biorefinery that has as its majority owner a publicly traded 
entity shall not be eligible for any points under this criterion.
    Two commenters suggest that the Agency reconsider its proposal to 
award increased points to loan applicants that have a higher percentage 
of owners whose primary residences are within 20 miles of the area 
supplying feedstock to the biorefinery. While it is reasonable to 
expect that biomass production sites will be near a biorefining 
facility, requiring local ownership of the project and establishing a 
strict 20-mile proximity requirement for scoring is not necessarily the 
only manner in which to achieve this goal. The commenters urge the 
Agency to be flexible in its scoring on this matter and to ensure that 
comparable points are awarded for projects that use other means to 
encourage nearness of feedstock to biorefinery.
    Response: The Agency disagrees with the commenters in that this 
criterion is not intended to encourage nearness of the feedstock to the 
biorefinery, but to encourage local ownership of the biorefinery, which 
is a specified criterion in the statute. The Agency notes that it has 
revised the points associated with this criterion, from 15 to 5.
Delete the Criterion
    Comment: One commenter states that the local ownership requirement 
should be removed to be in keeping with the goals of financing pre-
commercial projects. Although in the past we have seen much local 
ownership in ethanol and biodiesel plants, this was not true with the 
first commercial scale facilities. It was only after a track record had 
been established that rural residents became comfortable with these 
investments. Requiring local investment is yet another hurdle not 
needed for a pre-commercial support program.
    One commenter states that the Agency should not require local 
ownership of a biorefinery to qualify for this program. Local ownership 
requirements place additional investment challenges on projects that 
otherwise could have a significant impact on rural development. Lack of 
investment financing is the biggest impediment and this requirement 
handicaps projects even further.
    Response: The Agency points out that local ownership is not an 
eligibility criterion, as the commenters seem to think, but is one of 
the criteria that the Agency will use to score applications. Further, 
because the statute identifies local ownership as a scoring criterion, 
the Agency must include it in the rule.
Scope
    Comment: One commenter states that the aviation industry welcomes 
``local'' investors in an alternative aviation fuel biorefinery, but 
believes that these investors should be allowed to live within the 
geographic region where the feedstock is grown. In addition, the 
commenter proposes that the regulations allow refineries that invite 
``local'' investors into a project after it has been structured to 
score local ownership points.
    The commenter further states they have seen a number of aviation 
fuel biorefinery proposals for 100 million gallons per year refineries 
that plan to use camelina, one of the most promising non-food 
feedstock. Each proposal indicates that, until camelina becomes a 
generally accepted crop by farmers, it is likely that a refinery would 
have to purchase camelina from farmers in several states and, as a 
result, the definition of ``local'' would need to be changed.
    Response: The Agency has revised the rule to remove the reference 
to the feedstock supply area and now defines local owner as ``an 
individual who owns any portion of an eligible advanced biofuel 
biorefinery and whose primary residence is located within a certain 
distance from biorefinery as specified by the Agency in a Notice 
published in the Federal Register.'' As has been noted previously, the 
Agency is seeking comment on the most suitable mechanism for defining a 
local owner. The Agency disagrees with the comment on inviting ``local 
investors into a project after it has been structured.'' To be 
considered under this score criterion, local investors need to be 
identified in the application. The Agency can consider local owners 
from more than one state as long as the owners are within a certain 
distance from the advanced biofuel biorefinery. The Agency notes that 
the scoring criteria give preference; they do not determine 
eligibility. As to gaming the local ownership provision, the Agency has 
addressed this by clarifying that it will examine the percentage of 
local ownership versus number of owners.

Purpose and Scope (Sec.  4279.201)

    Comment: One commenter supports the continued development of a loan 
guarantee program for biorefineries in order to encourage the 
development and construction of commercial scale biorefineries and for 
the retrofitting of existing facilities using eligible technology for 
the development of advanced biofuels. The commenter supports the goal 
of the program and believes that the Agency is being prudent by 
remaining open to all feasible technologies at this stage in the 
development of the biofuels industry. In addition, the commenter 
supports the Agency's proposal to conduct the program on a rolling 
application acceptance basis that allows the Agency to make decisions 
regarding proposed deals in a relatively short period of time.
    Response: The Agency appreciates the commenter's support.

Definitions (Sec.  4279.202(a))

    Comment: One commenter recommends reviewing the definitions within 
the October 7, 2009 DOE solicitation to determine if some of these 
definitions can be utilized for this regulation so there are some 
common definitions between the DOE and the Agency loan guarantee 
programs.
    Response: While both Agencies have similar terms, specific 
definitions have to vary in response to different statutory provisions 
and Departmental policies.
Affiliate
    Comment: One commenter recommends adding a definition of 
``affiliate,'' to read: ``Affiliate. This term has the meaning set 
forth in Section 2(k) of the Bank Holding Company Act (12 U.S.C. 
Section 1841(k)).'' The commenter points out that commercial banks and 
thrifts administer their CDFI Fund approved New Markets Tax Credit 
Program (NMTC) Program through controlled affiliates. This addition 
would enable CDFI Fund approved NMTC Program lenders that are under the 
control of a bank or thrift to become eligible for the section 9003 
program

[[Page 8431]]

and provide the benefits of the NMTC Program to projects financed using 
guaranteed loans under the section 9003 Program.
    Similarly, another commenter states that they have discussed with 
many prospective biorefinery applicants the advantage of combining 
Federal NMTC Program available to certain commercial banks with a loan 
guarantee under the section 9003 program. The NMTC Program is 
administered by the Community Development Financial Institution Fund 
(CDFI Fund) within the Department of Treasury and provides tax credit 
equity to certain approved lenders. The program has the effect of ``de-
leveraging'' a project by passing through the tax credit equity to the 
borrower as an additional source of funds for a project. The commenter 
states that in order to accommodate the use of the NMTC Program by 
affiliates of commercial banks and thrifts who have been approved by 
the CDFI Fund and the section 9003 program, Sec.  4279.202(c)(2) must 
be revised to read as follows:
    ``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, or an Affiliate of a commercial bank or thrift, these 
levels will be based upon those reflected in the Call Reports and 
Thrift Financial Reports of that commercial bank or thrift.''
    Response: The Agency disagrees with commenters that a definition of 
affiliate is needed as it relates to a lender. Lenders must 
independently qualify regardless of whether they are affiliated with 
another eligible lender.
Association of Agricultural Producers
    Comment: One commenter urges the Agency to ensure that state and 
national trade associations are not included in this definition because 
it would be improper for such groups to receive Agency loan funds. 
Because money is fungible, it would be difficult for the Agency to 
track the actual usage of the funds. Funds should go for those 
activities strictly associated with building and operating advanced 
biorefineries.
    Response: The Agency disagrees with the commenter. The statutory 
language is broad enough to include these entities. The Agency does not 
want to limit the pool of eligible applicants as suggested. However, it 
should be noted that most associations would not have the ability to 
own, operate, and incur debt for such a project. Further, the Agency 
would rely upon the lender to ensure that funds were spent as proposed.
Biofuel/Advanced Biofuel
    Comment: One commenter recommends expanding the definition of 
biofuel to include heat and power derived from renewable biomass. The 
commenter states that the production of renewable heat and power from 
renewable biomass is just as advantageous to national security and 
energy independence as transportation fuel.
    Response: The Agency disagrees with the recommendation. Per the 
authorizing legislation, heat and power are not considered biofuel. The 
applicant would first need to demonstrate they are producing an 
advanced biofuel, which could then be used for combined heat and power 
systems.
    Comment: Regarding the definition of advanced biofuel, one 
commenter states that EPA now requires that diesel engines used in 
transportation must emit extremely low levels of nitrogen oxides 
(NOX). The most common way to mitigate NOX 
emissions is to use urea to react with the fuel exhaust in a catalytic 
converter. Given that it will soon be illegal to drive a diesel vehicle 
without such capabilities, that the engine exhaust is an integral part 
of the fuel system, and that such exhaust must be treated, it can be 
argued that any additive that reduces such emission is part of the 
overall fuel system. When produced from renewable biomass, these would 
be considered advanced biofuels. Also, given that urea and all such 
other nitrogen products are being imported as foreign produced energy 
intensive products, production of these advanced biofuels in a 
biorefinery meet and achieve the overarching goals of the program and 
should qualify equally for the program.
    Response: Applications will be accepted for biorefineries that 
produce an advanced biofuel. At the present time, urea is not 
considered an advanced biofuel. However, urea is considered a biobased 
product. The rule has been modified to require that a majority of the 
biorefinery production is advanced biofuels. The definition of 
biorefinery requires the production of biobased products in addition to 
biofuel.
    Comment: One commenter is concerned that the Agency has 
misconstrued congressional intent with regard to the definition of 
``advanced biofuel'' when the Agency states in the preamble that it 
``understands the definition to apply to solid, liquid, or gaseous 
fuels that are final products.'' The Agency's Commodity Credit 
Corporation made a similar statement regarding solid advanced biofuels 
in its Biomass Crop Assistance Program (BCAP) proposal, where it stated 
that a biomass conversion facility includes a facility that proposes to 
convert renewable biomass into heat, power, biobased products, advanced 
biodiesel, or advanced biofuels, such as wood pellets, grass pellets, 
wood chips, or briquettes.
    The commenter does not believe that any solid fuel qualifies as an 
advanced biofuel under the 2008 Farm Bill. The Farm Bill definition 
closely tracks the definition in the 2007 Energy Independence and 
Security Act (EISA). Like the definition in EISA, the 2008 Farm Bill 
Section 9001 definition of advanced biofuel includes seven qualifying 
types of fuel. These fuels are listed in the exact same order, except 
that the 2008 Farm Bill definition replaces references to ``ethanol'' 
with references to ``biofuel.'' Congress also replaced the reference to 
``biomass-based diesel'' in EISA to ``diesel equivalent fuel.''
    The commenter states these changes did not evidence an intent to 
broaden the definition to include solid fuels, but rather indicated 
Congress' growing understanding that there were numerous kinds of 
advanced biofuels other than ethanol, including cellulosic diesel 
(e.g., BTL). Thus, it is clear that the 2008 Farm Bill definition 
builds and improves upon the EISA definition, but that in both cases 
Congress intended to include only liquid fuels and biogas. While the 
EISA definition specifically focuses on transportation fuels and the 
2008 Farm Bill definition does not, there is no indication that 
Congress ever intended to include products such as wood pellets, grass 
pellets, wood chips, or briquettes within the definition in either 
definition. Rather, under the 2008 Farm Bill, these types of products 
are either a ``biobased product'' or simply renewable biomass. The mere 
act of chipping, pelletizing, or compressing renewable biomass does not 
convert it into an advanced biofuel. The commenter encourages the 
Agency to clarify that advanced biofuels are liquid fuels (and biogas) 
as defined in the 2008 Farm Bill.
    Response: The Agency disagrees and is satisfied that the statute 
does not provide an exclusive list of eligible advanced biofuels and 
does permit solid fuels. However, the Agency has added a provision to 
the scoring criterion addressing a proposed project's impact on 
existing manufacturing plants and other facilities that use similar 
feedstock that if the facility proposes to use wood

[[Page 8432]]

pellets as its feedstock, no points would be awarded under this scoring 
criterion.
    Comment: One commenter states that the definition of advanced 
biofuels in the 2008 Farm Bill is ambiguous in regards to the inclusion 
of biofuels derived from sugar and starch. The commenter believes the 
Agency needs to clarify that advanced biofuels other than ethanol, for 
example fuels with a different molecular structure such as biobutanol, 
or other hydrocarbons with 4 or more carbons, produced from a corn 
starch feedstock, qualify for this program under the definition of 
advanced biofuel. The proposed rule for this program states that ``to 
be eligible for payments, advanced biofuels must be produced from 
renewable biomass, excluding corn kernel starch, in a biorefinery 
located in the United States.'' The inclusions section of the advanced 
biofuel definition in the legislation specifically includes ``(ii) 
biofuel derived from sugar and starch (other than ethanol derived from 
corn kernel starch)'' and ``(vi) butanol or other alcohols produced 
through the conversion of organic matter from renewable biomass.'' The 
commenter believes that this legislative ambiguity requires the Agency 
to clarify in the final rule that the only fuel produced from corn 
kernel starch excluded from this program is ethanol, per the 
legislation.
    Response: The Agency disagrees with the commenter. The statute 
defines advanced biofuels as fuels derived from renewable biomass other 
than corn kernel starch. Therefore, any advanced biofuel produced from 
corn kernel starch is excluded.
    Comment: Several commenters recommend broadening the definition of 
advanced biofuels to include bioproducts. There are many new 
technologies that are being developed in the pursuit of advanced 
biofuels that can significantly contribute to rural economic 
development through the use of biobased feedstock and/or biobased 
products that are more environmentally desirable as well as more cost 
effective. Many of these new technologies also require plants to be 
built to an economy of scale that would require a loan guarantee in the 
$100 to $250 million range. These projects can also provide needed jobs 
in rural areas and bring enhanced economic development to the region.
    Response: The definition of ``advanced biofuel'' is provided in the 
statute and, thus, cannot be changed by the Agency. The statute also 
defines ``biorefinery'' to include the production of both biofuels and 
biobased products. However, the potential borrower must demonstrate 
that the majority of the production is advanced biofuels.
Biorefinery
    Comment: One commenter states that the language ``and may produce 
electricity'' seems to be at odds with Sec.  4279.228(d). The commenter 
asks if this means a facility that produces electricity from an 
advanced biofuel is not an eligible project, unless the revenue 
generated from the sale of electricity is less than 30 percent of the 
total revenue generated by the biorefinery. The commenter believes that 
a facility that makes an advanced biofuel and biobased products (such 
as biogas) and then produces electricity from the advanced biofuel or 
biobased products should be deemed to be both a ``biorefinery'' within 
the meaning of Sec.  4279.202(a) and an eligible project within the 
meaning of Sec.  4279.228. In any event, clarity is needed in these two 
sections.
    Response: As long as the electricity is derived from advanced 
biofuels produced in the facility, the Agency agrees and has included 
clarifying language in the project eligibility section of the rule.
Byproduct
    Comment: One commenter suggests that the definition of byproduct 
include the primary product being produced whenever the primary product 
has more than one marketable use beyond as an advanced biofuel. For 
example, anhydrous ammonia is an excellent fuel in its own right, is 
the best way to transport, store, and recover hydrogen, and can also be 
used as fertilizer. There should be no penalties for a biorefinery that 
sells all of its product to established markets, whether as an advanced 
biofuel or as a byproduct, as long as the project can be financed.
    Response: As noted earlier, the Agency has removed the requirement 
that 70 percent of the revenue must be from the sale of advanced 
biofuel. To be eligible, the project needs to produce an advanced 
biofuel and biobased product and the majority of the production is 
advanced biofuels.
Eligible Technology
    Comment: One commenter states that, in conversations with Agency 
staff that oversees this program, there appears to be an 
``institutional bias'' in favor of technologies that follow a specific 
technology development pathway. There appears to be an expectation that 
all technologies should have completed a ``pilot facility'' as a 
precursor to commercial viability. However, not all technologies neatly 
fit into a reasonably priced ``pilot project'' pathway. Not all 
technologies can, nor should be required to, follow one common pathway 
to commercialization. For example, oxygen gasification of biomass to 
produce syngas to then produce fuels does not neatly fit into a 
reasonably priced, pilot scale technology development pathway. 
Specifically, the commenter states that their technology, when produced 
at commercial scale, will perform at a level that would normally be 
considered a pilot scale.
    Because of the type of technology involved, there are less 
expensive and better ways than a ``pilot project'' to design, optimize, 
and achieve high confidence in a commercial scale design. For example, 
to produce a quarter-scale implementation, the cost would be 70 percent 
of the commercial project and would not yield much valuable data for 
predicting the success at full scale. The physics and fluid dynamics 
differences between different scales of the same gasifier technology 
means that data gathered in one scale are only marginally useful in 
another scale. As a result, different techniques have been developed to 
design and scale such gasifiers. These techniques lead to an equal 
level of confidence in the proposed design and implementation as is 
often garnered from other technologies that are better suited to pilot 
scale projects. Therefore, the commenter maintains that requiring the 
advanced biofuel technology ``has at least a 12-month (four seasons) 
operating cycle at semi-work scale'' is unwarranted and unacceptable. 
This criterion assumes that there are no alternative, less expensive, 
or even better approaches to achieving confidence that the new 
technology is ready for first-time commercial deployment. In fact, 
there are such alternative approaches for many technologies. The 
program evaluation criteria must be flexible enough to provide the 
acceptance of technologies that do not neatly fit into the ``standard'' 
scale-up model that appears to be expected in this proposed rule.
    Response: The Agency disagrees with the recommendations. Because of 
the operational risks associated with these new and emerging 
technologies, it is necessary for the semi-work scale facility to 
operate for a sufficiently long period to determine if there is any 
seasonal variation in the production process. To determine if there is 
any seasonal variation, at least 12 months of operation is required. 
The technology must demonstrate technical and commercial viability at 
semi-work scale to qualify for the program. The technical

[[Page 8433]]

assessment criterion is not specific to any one technology.
    Comment: Two commenters state that the definition of technical and 
economic potential is inconsistent with prevailing industry practice 
and requirements of other Federal programs. Standard industry practice 
is to operate a demonstration plant for a sufficient enough time to 
generate steady state operating data that validates key unit operations 
and the integrated biorefinery process. For example, the DOE requires 
six months of operation and 1,000 to 2,000 hours of operating data at 
the demonstration scale level. The commenters recommend adopting a 
1,000 hour operating data requirement to define ``technical and 
economic potential'' instead of the 12-month requirement in the 
proposed rule.
    Another commenter states that, although it is generous to add a 
provision for ``semi-work scale,'' it is restrictive to include the 12-
month (four season) operating history in all cases. To prove the 
viability of the technologies being used, the commenter suggests that 
the requirement be changed to require that, with regard to algae 
projects, the growing, harvesting, and extraction systems be 
benchmarked by three independent third parties rather than requiring a 
specific length of operating history without a `proven results' 
requirement.
    Response: The Agency disagrees with the recommendation. Because of 
the operational risks associated with these new and emerging 
technologies, it is necessary for the demonstration plant to operate 
for a sufficiently long period to determine if there is any seasonal 
variation in the production process. To determine if there is any 
seasonal variation, at least 12 months of operation is required. Thus, 
requiring only 1,000 hours, as suggested, would not allow this 
determination of potential seasonal variation. Therefore, the Agency 
has not revised the rule as requested.
Farm Cooperative
    Comment: One commenter believes this definition would 
unintentionally exclude long-standing cooperatives from eligibility for 
the program. Cooperatives are not required to be formed under a 
cooperative incorporation statute in order to qualify as a cooperative 
for purposes of the IRS Code or other Federal statutes. A cooperative 
may be organized, instead, under a state's general business corporation 
statute and have its cooperative characteristics established in its 
articles and bylaws. The commenter is aware of many farmer cooperatives 
incorporated in this manner.
    The commenter recommends using the definition as put forth in the 
recently published proposed rule regarding the VAPG Program, 7 CFR 
parts 1951 and 4284, RIN 0570-AA79. In the proposed rule, ``farmer or 
rancher cooperative'' is defined as: ``A business owned and controlled 
by agricultural producers that is incorporated, or otherwise identified 
by the state in which it operates, as a cooperatively operated 
business.''
    This definition would include farmer cooperatives that are 
incorporated under general business corporation statutes and yet 
operate in a cooperative manner and are recognized as farmer 
cooperatives for purposes of Federal and state taxation and other 
statutes.
    One commenter agrees with the Agency's definition as being a 
business incorporated as a cooperative that is solely owned and 
controlled by agricultural producers. However, operational aspects 
should also be included, consistent with the requirements of the 
Capper-Volstead Act. This will help prevent the abuse of the term 
farmer cooperative.
    Response: In considering these comments, the Agency has determined 
that it is appropriate to revise the definition in the rule to be 
generally consistent with the definition being used in the value-added 
producer grant program. The revised definition requires the business to 
be ``cooperatively operated,'' which addresses the one commenter's 
request concerning operational aspects.
Participation
    Comment: One commenter recommends adding a definition for 
``participation.'' The commenter suggests the following:

Loan Participations

    Structure: Generally, participations are loans where the ``lead 
lender'' (Lead) sells a participation in a loan to one or more 
participating lenders (Participant(s)). The sale may be expressed in 
terms of a dollar amount or a percentage of the loan. The Lead then 
continues to manage the loan on behalf of itself and the Participants. 
The relationship among the lenders is typically formalized by a 
participation agreement, which states in writing that the Participant 
receives an undivided interest in the loan. The sale of the 
participation generally occurs after the Lead and the borrower have 
executed the loan documentation. The Participant is thus dependent upon 
the Lead for protection of its interests in the loan--the Participant 
and the borrower do not have privity of contract and thus have no 
rights or obligations to one another.
    Response: The Agency has determined that the definition of 
participation found in Sec.  4279.2, which is incorporated by reference 
in this rule, is sufficient. Thus, the Agency has not included the 
definition of participation suggested by the commenter.
Regulated or Supervised Lender
    Comment: One commenter states that, in order for the implementation 
of their recommended Bond Loan Model to be successful, the definition 
of Lender needs to be modified to add to the end thereof:
    ``* * * and may include a regulated or supervised lender, acting 
through its corporate trust department, that otherwise meets the lender 
eligibility requirements in Sec.  4279.202(c). A lender that otherwise 
meets the lender eligibility requirements of Sec.  4279.202(c), where 
the guaranteed and/or unguaranteed portions of the loan are to be 
funded through bonds, may join with a broker or dealer that is 
regulated by the Securities Industry and Financial Markets Association 
and is otherwise a registered broker or dealer within the meaning of 
the Securities Exchange Act of 1934, in submitting the application 
required by Sec.  4279.260 and be a party to such application for 
purposes of assisting the lender in assuring compliance with Sec.  
4279.261.''
    Response: The Agency disagrees with the commenter's suggested 
revision to the definition of lender. The Agency is authorized to 
guarantee loans, which in certain circumstances may include bonds as 
described below, under this program. The Agency considers that this 
requires a lender to make the loan from its resources and then service 
that loan itself. While the Agency will permit the lender to secure 
limited servicing responsibilities from third parties, the lender must 
remain responsible for the servicing. The rule clarifies the definition 
of eligible lenders, which is similar to that used in the Business and 
Industry Guaranteed Loan Program. As noted earlier, savings and loan 
associations, mortgage companies, and other lenders (those that are not 
regulated) are not eligible to participate in this program.
    The Agency considers this as distinct from the typical investment 
banking scenario where an investment bank secures the financing from 
outside investors. After the funding is secured, the investment bank 
has no further involvement with the transaction. Servicing is handled 
by a trustee who reports to and is controlled by the

[[Page 8434]]

investors. The Agency considers that this is an investment instead of a 
loan and that its current authority is insufficient to guarantee 
investments.
Renewable Biomass
    Comment: One commenter states that they are aware of the numerous 
definitions of biomass in Federal statutes and understand that the 
Agency is compelled to administer the loan guarantee program based upon 
the definition in Section 9001 of the 2008 Farm Bill. The commenter 
hopes that Congress will consider reconciling these definitions in the 
near future, and asks that the Agency, in coordination with the 
Biofuels Interagency Working Group, provide recommendations on a 
definition of biomass that is consistent with sustainability principles 
while also providing adequate supplies of biomass. The commenter 
believes that the 2008 Farm Bill definition meets these criteria.
    Response: The Agency acknowledges the comment.
Syndication of Loans
    Comment: One commenter recommends adding a definition of 
``syndication of loans.'' The commenter suggests the following:
    Syndication Structure: A loan participation is similar to a loan 
syndication in that a group of lenders provides funds to a borrower. In 
a syndication, however, each lender signs the loan agreement with the 
borrower and thus has a direct legal relationship with the borrower. 
One of the lenders will be designated as the agent-lender (Agent) for 
the other syndicate members. The Agent is typically the lender owning 
the largest percentage of the loan or the lender with enough prestige 
to form a syndicate of lenders. The Agent may also be the lender with 
an established relationship with the borrower. It is responsible for 
structuring the intended credit facility, pricing the loan, developing 
information pertaining to the borrower, and negotiating and closing the 
transaction. Thus, all formal communications among the lenders, as a 
group, and the borrower are conducted through the Agent and all funds 
are disbursed through and received by the Agent.
    Response: The Agency does not agree that the rule needs to include 
provisions directed at syndication. The Agency has made three 
significant changes to the rule that mitigate and minimize the concerns 
expressed by this and other commenters for syndication in order to 
mitigate lead lender risk. Specifically, the three changes are:
     Revising the minimum retention requirement from 50 percent 
of the unguaranteed portion to 7.5 percent of the total loan amount;
     Enabling the interest rate of the unguaranteed portion of 
the loan to increase by 500 basis points rather than 1 percent as 
proposed; and
     Allowing loan guarantees up to 90 percent for guaranteed 
loans of $125 million or less.

Lender Eligibility Requirements (Sec.  4279.202(c))

    Comment: One commenter states that the early preamble comments to 
the regulation indicate that lender eligibility will be restricted to 
regulated, supervised lenders. Given the highly specialized nature of 
biorefinery lending, the restriction on eligible lenders should not be 
driven by regulatory controls, but rather by experience and 
sophistication in financing biorefinery projects. The parameters for 
eligible lender instead should be broader than those outlined in 4279-A 
and should include experienced investment bank consortiums with an 
emphasis on experience and capitalization. The commenter states he did 
not actually find the lender eligibility criteria anywhere in the 
proposed rule.
    One commenter recommends expanding the definition of eligible 
lender to make it clear that lenders other than commercial banks are 
allowed. The definition could be: ``Any person or legal entity for the 
purpose of, or engaged in the business of, lending money, including, 
but not limited to, commercial banks, insurance companies, credit 
unions, mutual funds, factoring companies, investment banks, 
institutional investors, venture capital investment companies, trusts, 
or other entities designated as trustee or agents acting on behalf of 
bondholders or other lenders.''
    Another commenter is concerned that allowing only commercial banks 
to participate in the loan guarantee program limits the pool of 
potential investors and rules out investors such as insurance 
companies, pension funds, mutual funds, and college endowments. The 
commenter believes it makes sense to allow the borrower to fund debt 
from any accredited investor in order to maximize the potential 
investor base and lower the overall cost of borrowing for biofuel 
projects.
    Response: The Agency disagrees with the commenters regarding 
eligible lenders, and the rule reflects requirements that are similar 
to those for a traditional lender under the Business and Industry 
guaranteed loan program. The Agency requires a lender to make the loan 
from its resources and then service that loan itself. While the Agency 
will permit the lender to secure limited servicing responsibilities 
from third parties, the lender must remain responsible for the 
servicing.
    Comment: One commenter believes that allowing biorefinery 
applicants to use the Federal Financing Bank as the sponsor lender, 
similar to the DOE loan guarantee program, would provide projects with 
another option to secure debt financing.
    Response: The Agency cannot consider the Federal Financing Bank as 
an eligible lender because it requires a 100 percent guarantee, which 
the Agency is prohibited from offering by statute.
    Comment: One commenter recommends allowing a ``lead lender/
arranger'' to submit an application for a loan guarantee by the NOFA 
deadline, stating the level of their funding commitment along with a 
funding plan on how the remaining portion of the loan will be financed 
by other lenders. The other lenders may not be identified until after 
the ``lead lender'' receives the Conditional Commitment, but will be 
identified and subject to the Conditional Commitment prior to issuance 
of the Loan Note Guarantee.
    Response: The comment presumes that the rule would allow 
syndication. However, for the reasons presented in response to an 
earlier comment, the interim rule does not contain provisions specific 
to syndication. Therefore, no changes have been made to the rule in 
response to this comment.
    Comment: One commenter recommends allowing the ``lead lender/
arranger'' to perform the servicing activities of the syndication, and 
deal directly with the borrower instead of requiring all the lenders of 
the syndication perform duplicate routine servicing activities. Each 
original lender will hold its own promissory note and the collateral is 
held by the arranger as agent for each of the members of the syndicate. 
As to any matters of significance, a vote or approval of 51 percent of 
the lenders is required to take any action (e.g., waive or modify 
covenants, release collateral, agree to forbearance, declare default 
and liquidate collateral, etc.). Each of the original lenders in the 
syndication would be responsible for servicing, but there would only be 
one original lead lender performing most of the servicing activities.
    Response: Absent syndication, the Agency agrees with the concept of 
a lead lender in the context of participation. As noted in a previous 
response, while the interim rule does not contain provisions specific 
to

[[Page 8435]]

syndication, the rule does provide other ways lenders can manage risk, 
which address the concerns raised by the commenter.
    Comment: One commenter recommends allowing lenders to ``participate 
the loans,'' which is different than ``syndication of lenders'' with 
other lenders by Participation Agreements.
    Response: Participations are not excluded under the rule. The 
Agency has determined that the definition of participation found in 
Sec.  4279.2, which is incorporated by reference in this rule, is 
sufficient for allowing participations.
    Comment: One commenter recommends clearly allowing a ``syndication 
of lenders'' to finance a single project. The process could be 
structured similar to the Solicitation Notice DE-FOA-0000166 issued by 
the DOE on October 7, 2009. This is the traditional way large loans of 
this type are financed by lenders.
    Response: For the reasons previously provided in response to other 
comments on syndication, the interim rule does not contain provisions 
specific to syndication. As noted in a previous response, while the 
interim rule does not contain provisions specific to syndication, the 
rule does provide other ways lenders can manage risk, which address the 
concern raised by the commenter.

Lender Eligibility Requirements (Sec.  4279.202(c)(1))

    Comment: One commenter recommends allowing SEC-regulated investment 
banks, as well as commercial banks, to act as the applicant ``lender-
of-record.'' According to the commenter, commercial banks are not the 
best equipped entities to perform due diligence and debt structuring 
and placement on first-of-kind biorefinery projects. Because a 
``lender-of-record'' serves as the applicant for the program, this 
restrictive definition of eligible ``lenders-of-record'' fundamentally 
restricts the potential applicant pool.
    Response: The Agency's current statutory authority does not permit 
investment banks to be eligible lenders. The rule reflects requirements 
that are similar to those for a traditional lender under the Business 
and Industry guaranteed loan program. The Agency requires a lender to 
make the loan from its resources and then service that loan itself. 
While the Agency will permit the lender to secure limited servicing 
responsibilities from third parties, the lender must remain responsible 
for the servicing.
    Comment: One commenter states that the ``supervised or regulated'' 
lender terms are unclear and further definition or guidance needs to be 
provided so potential lenders know if they meet the criteria prior to 
applying for a loan guarantee. The commenter recommends loosely 
defining the term ``supervised or regulated'' in order to allow as many 
different types of lenders as possible to qualify, but still have an 
adequate amount of oversight by a state or Federal agency. If a lender 
is not ``supervised or regulated,'' then provisions should be stated as 
to what other criteria they can meet so they can become an eligible 
lender. This could be patterned after the ``non-traditional'' lender 
requirements that the B&I guaranteed loan program utilizes.
    Response: The Agency agrees with the commenter that the term 
``supervised and regulated'' was unclear and has modified the rule to 
define eligible lenders similar to the Business and Industry Guaranteed 
Loan Program. However, the Agency disagrees with the commenter to make 
the requirements similar to the non-traditional lender language under 
the Business and Industry Guaranteed Loan program. Due to the amount of 
risk associated with these projects, the Agency has determined, based 
on the its experience in managing lender risk in other guaranteed loan 
programs, that traditional lenders offer stronger capital base and loan 
and servicing experience.

Lender Eligibility Requirements (Sec.  4279.202(c)(2))

    Comment: One commenter asks how the requirement that the lender 
must maintain at all time the minimum acceptable levels of capital 
specified in Sec.  4279.202(c)(2)(i) through (iii) will be enforced. 
The commenter also asks: What is the purpose of this requirement? What 
happens if the lender fails to meet the requirements? The commenter 
recommends that this requirement be removed from the proposed 
regulation.
    Response: The Agency has modified the rule to require that the 
lender must meet acceptable levels of capital at the time of 
application and issuance of loan note guarantee, thereby removing the 
requirement of maintaining acceptable capital levels at all times, 
which addresses the enforcement concern noted by the commenter.
    Comment: One commenter requests clarification as to whether there 
are any minimum total risk based capital ratios or leverage capital 
ratio requirements if the lender is not a commercial bank or thrift.
    Response: Lenders other than commercial banks or thrifts must also 
demonstrate that they meet the same criteria identified in Sec.  
4279.202(c)(2).

Debarment/Suspension (Sec.  4279.202(c)(3))

    Comment: In pointing out that one of the lender eligibility 
requirements is that the lender must not be otherwise debarred or 
suspended by the Federal government, one commenter states that he 
assumes this language does not disallow lenders that may have a cease 
and desist order or other directive requesting corrective actions from 
FDIC from obtaining a loan guarantee. The commenter recommends that 
lenders be able to obtain a loan guarantee even if they have a cease 
and desist or other directive from FDIC requesting corrective actions. 
The B&I guaranteed loan program allows lenders to continue to obtain 
loan guarantees.
    Response: Because of the maximum program loan amount for this 
program (i.e., $250 million) and the associated risk under this 
program, the Agency is concerned that allowing a lender with a cease-
and-desist order to continue to obtain a loan guarantee may not be in 
the government's best interests. Therefore, the Agency will evaluate 
such instances on a case-by-case basis.

Lender Experience (Sec.  4279.202(c)(5))

    Comment: One commenter states that the Agency is contemplating 
approving loan guarantees 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 the section 
9003 program. The Agency believes this provision is necessary to 
further limit Agency risk, and the Agency is proposing the issuance of 
loan guarantees to regulated or supervised lenders, which precludes 
bond financing monies from being guaranteed under this program. In a 
better economy, other forms of financing, such as bond financing, might 
become available. Although the underwriting requirements are not 
necessarily as stringent as bank loans, and given the results of the 
state guarantees of debt for biorefineries, the commenter suggests 
that, in order for bond financing to qualify for Agency guarantees, the 
same guidelines and requirements be implemented as for more traditional 
lenders.
    The commenter proposes that the Agency, the lenders, and the 
borrowers all remember that the Agency is offering to issue loan 
guarantees, and that the guidelines not interfere with the traditional 
asset-based lending process,

[[Page 8436]]

but supplement it by offering lenders inducements to make the loans 
necessary to develop commercial-scale projects.
    Response: The Agency is authorized to guarantee loans, which in 
certain circumstances may include bonds as described below, under this 
program. The Agency considers that this requires a lender to make the 
loan from its resources and then service that loan itself. While the 
Agency will permit the lender to secure limited servicing 
responsibilities from third parties, the lender must remain responsible 
for the servicing.
    Recognizing the current difficulties in securing funding, the 
Agency has been approving certain bond transactions. The Agency 
considers that, under the limitations contained in this regulation, 
guaranteeing these bonds is in keeping with its authority. In order to 
be more transparent of its willingness to guarantee certain bond 
transactions, the Agency has modified this regulation accordingly.
    Specifically, the lender is required to provide the loan proceeds 
and service the loan. The Agency will allow a trustee to provide 
limited servicing only if the trustee is fully under the control of the 
lender. Holders' rights are limited to receiving payments under the 
note or bond and if those payments are delinquent making demand for 
payment on the lender and the government as provided in the regulation. 
In certain cases where the lender and borrower desire to change the 
loan terms, the holder is also required to consent to any changes. 
Loans providing holders any other rights are ineligible for guarantee 
under this program.

Independent Credit Risk Analysis (Sec.  4279.202(d))

    Comment: One commenter states that the requirement for an 
independent risk analysis mentioned in Sec.  4279.202(d) refers to a 
$100,000 threshold, and recommends a threshold of $100 million.
    Response: The Agency agrees that the $100,000 amount was in error. 
The error has been corrected in the rule to $125 million.

Environmental Responsibilities (Sec.  4279.202(e))

    Comment: One commenter recommends basing the environmental review 
requirements of Sec.  4279.202(e) on 7 CFR part 1794 rather than 7 CFR 
part 1940, subpart G. The commenter points out that 7 CFR part 1940, 
subpart G, relies heavily on agency personnel to conduct the 
environmental analysis, whereas 7 CFR part 1794 places the burden for 
preparation on professional consultants whose work is then subject to 
agency review. This latter approach is appropriate given the 
complexities of biorefinery environmental impacts. The commenter 
believes that Agency personnel will typically lack the expertise for a 
project of this nature.
    Response: The Agency disagrees with the commenter. The program is 
consistent with the Business and Industry Guaranteed Loan Program, 7 
CFR part 4279, subparts A and B, which references 7 CFR part 1940, 
subpart G. The rule requires the applicant to complete Exhibit H of 7 
CFR part 1940, subpart G, which is an environmental report, similar to 
the Rural Utilities Service 7 CFR part 1794 process. Neither this 
program nor the Business and Industry Guaranteed Loan Program precludes 
third parties from performing the environmental analysis necessary for 
the Agency to conduct its National Environmental Policy Act evaluation 
as long as the submitted material is sufficient for the Agency 
purposes.

Conditions of Guarantee (Sec.  4279.202(i))

    Comment: Several commenters state that, as proposed, the guarantee 
would protect only 60 percent of the bank's position. The commenters 
recommend that, if the Agency wants to insist on a first lien position, 
a guarantee of up to the 90 percent level allowed by statute is 
certainly warranted for loans on first-of-a-kind technologies. If the 
Agency does not increase the guarantee level to 90 percent, some of the 
commenters recommend that the lien positions of the Agency and the 
holders of unguaranteed debt have equal priority.
    Response: The Agency is allowing a guarantee of 90 percent for 
guaranteed loans of $125 million or less under certain conditions. To 
clarify for the commenter, the Agency requires that the lender acquire 
the first lien position on the collateral. The Agency does not file a 
lien against the collateral. The Agency notes that the guaranteed and 
the unguaranteed portions of the loan have the same lien priority.
    Comment: One commenter states that a working capital lender is 
vital to the success of any biorefinery, and that, under commercial 
lending practices for project finance transactions, a working capital 
lender will require a first lien on raw goods, works in progress and 
finished goods inventory, as well as proceeds thereof (in the form of 
accounts receivable), including any insurance proceeds. Therefore, the 
commenter recommends modifying Sec.  4279.202(i) to provide that a 
working capital lender may have a first lien on raw goods, work in 
process and finished goods inventory, as well as proceeds thereof (in 
the form of account receivable), including any insurance proceeds.
    Response: The Agency is agreeable to allowing working capital 
loans, not guaranteed by the Agency, which are secured by the inventory 
and accounts receivable. The Agency may consider a subordinate lien 
position on inventory and accounts receivable for working capital loans 
under certain conditions (see Sec.  4279.202(i)(1)). The Agency 
disagrees with the comment regarding inclusion of insurance proceeds. 
The borrower should be able to obtain a working capital loan without 
the inclusion of insurance proceeds.
    Comment: One commenter believes that the requirement of Sec.  
4279.202(i) for a first lien on all collateral is too inflexible. The 
commenter recommends that a section 9003 loan be fully secured, and any 
improvements or property financed with section 9003 funds be pledged 
under a first lien. Beyond this, the collateral should be negotiable. 
The commenter believes it may be necessary to allow other lenders to 
have a first lien on assets they finance, and this is certainly the 
case with any lender providing working capital.
    Response: The Agency partially agrees with the commenter. The 
Agency is agreeable to allowing working capital loans, not guaranteed 
by the Agency, which are secured by the inventory and accounts 
receivable. The Agency may consider a subordinate lien position on 
inventory and accounts receivable for working capital loans under 
certain conditions. However, the Agency disagrees with rest of the 
comment due to the risk to the government.
    Comment: Two commenters state that the proposed rule appears to 
conflict with the 9003 NOFA in that it would put the unguaranteed 
lenders in a junior position to the Agency, whereas the 9003 NOFA 
states: ``The entire loan will be secured by the same security with 
equal lien priority for the guaranteed and unguaranteed portions of the 
loan.''
    Response: There is no conflict. Within the rule at Sec.  4279.224, 
a cross reference is made to the provisions found in Sec. Sec.  
4279.107 through 4279.187, which includes Sec.  4279.131(e) stating 
``the entire loan will be secured by the same security with equal lien 
priority for the guaranteed and unguaranteed portions of the loan.'' As 
noted above for clarification purposes, the Agency requires that the 
lender acquire the first lien position on the collateral. The Agency 
does not file a lien against the collateral.

[[Page 8437]]

    Comment: One commenter states that the Agency should clarify that 
the guaranteed and unguaranteed lenders will rank pari passu with 
respect to the first lien on project collateral as specified in the 
2008 Notice of Funding Announcement (NOFA). The commenter believes the 
Agency added the first lien requirement in the proposed rule due to the 
size of the guaranteed loans under this program. This requirement puts 
lenders in a secondary position behind the Federal government. The 
lender's position is protected by the loan guarantee--but only up to 
the percentage amount of the guarantee. In case of default on a $125 to 
$250 million loan, the guarantee would protect only 60 percent of the 
lender's position, according to the proposed rule's current structure.
    The commenter recommends that, if the Agency includes the first 
lien position as specified in the proposed rulemaking in the final 
rule, a guarantee of up to the 90 percent level, as allowed by statute, 
be provided for loan guarantees on first-of-a-kind technologies.
    Response: As noted above for clarification purposes, the Agency 
requires that the lender acquire the first lien position on the 
collateral. The Agency does not file a lien against the collateral. As 
previously referenced, the entire loan will be secured by the same 
security with equal lien priority for the guaranteed and unguaranteed 
portions of the loan.
    Comment: One commenter states that the requirement for the 
guarantee to be secured by a first lien on all collateral to run the 
project in the event of a borrower's default, along with a bank lender 
being required to hold 50 percent of the unguaranteed portion, has the 
effect of being an unguaranteed loan equal to 10 percent of the project 
loan for the bank. The commenter recommends some form of lien with pari 
passu repayment formula in order to provide sufficient incentive for 
lenders to participate.
    Response: Within the rule at Sec.  4279.224, a cross reference is 
made to the provisions found in Sec. Sec.  4279.107 through 4279.187, 
which includes Sec.  4279.131(e) stating ``the entire loan will be 
secured by the same security with equal lien priority for the 
guaranteed and unguaranteed portions of the loan.'' Therefore, the 
guaranteed and unguaranteed portions of the loan enjoy the same lien 
position.
    Comment: One commenter states that the proposal requiring that the 
guarantee be secured by a first lien on all collateral is unreasonable 
from a commercial lending standpoint. In order to comply with basic 
asset based lending guidelines and prudent commercial lending 
guidelines, the lender must have a first lien position on all assets of 
the borrower. The commenter further states that, because the terms of 
the guarantee documentation will address when the guarantee comes into 
play, which would be after an uncured event of default by the borrower 
under the lender's loan documents, an assignment by the lender to the 
Agency of its lien position, should the lender pursue the guarantee, is 
a standard and customary term.
    Response: As noted above, the Agency requires that the lender 
acquire the first lien position on the collateral. The Agency does not 
file a lien against the collateral. As previously referenced, the 
entire loan will be secured by the same security with equal lien 
priority for the guaranteed and unguaranteed portions of the loan.
    Comment: Several commenters state that the Agency should not hold 
the first lien on all collateral necessary to run the project in the 
event of a borrower's default. Lenders would, therefore, be subordinate 
to the government. In the event of default, the lender's position is 
only protected up to the percentage of the B&I guaranteed. The 
commenters also state that this also contradicts the current B&I 
guaranteed loan requirements, which have worked well for the Agency in 
the past.
    Response: As noted above, the Agency requires that the lender 
acquire the first lien position on the collateral. The Agency does not 
file a lien against the collateral. As previously referenced, the 
entire loan will be secured by the same security with equal lien 
priority for the guaranteed and unguaranteed portions of the loan.
    Comment: One commenter states that authorizing guarantees of a 
revolving credit facility for future working capital and allowing the 
replacement of the non-guaranteed portion of the loan with equity would 
provide cellulosic biofuel companies necessary flexibility to better 
finance commercial projects.
    Response: The Agency does not agree with authorizing guarantees of 
a revolving credit facility for future working capital. Working capital 
is an eligible purpose for the guaranteed loan but, at this time, the 
Agency feels that lenders can administer revolving credit facilities 
more efficiently. Therefore, the Agency is agreeable to allowing 
working capital loans, not guaranteed by the Agency, which are secured 
by the inventory and accounts receivable. The Agency also does not 
agree with allowing the replacement of the non-guaranteed portion of 
the loan with equity. The non-guaranteed portion of the loan cannot be 
converted because the Agency wants the lender to maintain a lending 
interest in the loan.

Sale or Assignment of Guaranteed Loan (Sec.  4279.202(j))

    Comment: Based upon the state of the commercial banking industry, 
one commenter recommends applying the language regarding the 
transferability of the loan to any accredited investor to both the 
guaranteed and unguaranteed portions of the loan.
    Response: To allow the transfer of the unguaranteed portion of the 
loan beyond the minimum retention requirement would minimize the 
lender's financial interest in the project. Therefore the Agency 
disagrees with the recommendation. The Agency notes that the 
unguaranteed portion of the loan in excess of the minimum retention 
requirement may be sold to third party holders.
    Comment: One commenter states that the Agency should explain why it 
will not guarantee a loan funded with the net proceeds of a bond 
described in section 142(a) of the Internal Revenue Code of 1986.
    Another commenter believes what the Agency intended to say in the 
second part of Sec.  4279.202(j) is that the guaranteed portion of the 
loan may not be funded with the net proceeds of bonds described in 
section 142(a) of the Internal Revenue Code of 1986, as a result of the 
prohibition thereof contained in Section 149(b). The commenter suggests 
revising Sec.  4279.202(j) to read as follows:
    ``In addition to complying with the provisions of Sec.  4279.75, 
and subject to the limitation imposed on the original lender by Sec.  
4279.202(k), the guaranteed and unguaranteed portions of the loan shall 
be fully transferable to any accredited investor and the Agency may not 
guarantee any portion of the loan funded with the net proceeds of the 
bond described in section 142(a) of the Internal Revenue Code of 1986. 
The unguaranteed portion of the loan may be funded with the net 
proceeds of a bond described in section 142(a) of the Internal Revenue 
Code of 1986.''
    A third commenter states that borrowers should be permitted to 
access the tax-exempt capital markets for the unguaranteed portion of 
debt. Tax-exempt project debt appears permitted, but should be 
explicitly allowed for the unguaranteed portion of the debt. Projects 
should be afforded every opportunity to lower interest costs, 
especially by way of Federal, state and local programs designed to meet 
regional and national priorities such as

[[Page 8438]]

the Recovery Zone bond programs. The commenter recommends that 
borrowers should be permitted in all cases to access the tax exempt 
capital markets, including when necessary through state authority 
issuance vehicles.
    Response: The Agency disagrees with the request to modify proposed 
Sec.  4279.202(j). To support consistency between this program and the 
B&I guaranteed loan program and to eliminate any duplicative Federal 
assistance that would be provided by the subsidy for the loan note 
guarantee and the tax exemption, the Agency has determined that it 
would be inappropriate to distinguish between guaranteed and 
unguaranteed portions of the loan when applying this provision.

Minimum Retention (Sec.  4279.202(k))

    Comment: Seven commenters state that the proposed level of 
unguaranteed loan retention by the original lender is not possible 
given today's market conditions. The commenters state that banks remain 
extremely cautious to make loans to first-of-a-kind technologies. One 
commenter states that the risks associated with holding a large 
unguaranteed portion of a loan is akin to making an equity investment 
in the enterprise being financed, something most lenders are unable to 
do because of regulatory constraints, or are unwilling to do because of 
the high degree of risk involved. These commenters, therefore, 
recommend eliminating this provision.
    Six commenters recommend using the same requirement for minimum 
retention that is allowed for the guaranteed Business and Industry loan 
guarantee program where the lender is to retain 5 percent of the loan 
amount.
    One commenter believes, for a multitude of reasons, that this 
section of the proposed rule is unworkable and relies upon assumptions 
that are incorrect. The commenter disagrees with the size of the 
minimum retention requirement and the assumption on which it was based 
for the following reasons:
    (1) The Agency did not do adequate diligence or inquiry of the 
commercial banking industry when it proposed the 50 percent minimum 
retention requirement in the Section 9003 NOFA as is evidenced by its 
recent outreach to commercial banks to determine why they have been 
unwilling to act as a sponsor/lender of a section 9003 program 
guaranteed application;
    (2) the Agency incorrectly assumed that a commercial bank 
originating a loan guarantee under the section 9003 program would be 
less interested in or attentive to the servicing of a loan where the 
potential loss to the lender in a liquidation scenario would be 
$12,500,000 (assuming application of the B&I Program's 5 percent 
minimum retention requirement) versus $50,000,000 (assuming application 
of the section 9003 program's 50 percent of the unguaranteed portion 
minimum retention requirement). The commenter asserts that there is not 
a commercial bank in the U.S. that would devote less attention to a 
$12,500,000 potential loss than a $50,000,000 potential loss, as either 
loss is material;
    (3) the Agency did not do adequate diligence in setting the minimum 
retention requirement in the Section 9003 NOFA, because, if it had, it 
would have understood that for a $250,000,000 loan guarantee, there are 
likely less than 5 commercial banks in the U.S. that have the capacity 
to originate such a loan where they were required to retain 50 percent 
of the unguaranteed portion thereof; and
    (4) the Agency failed to do appropriate diligence when it issued 
the Section 9003 NOFA because there are no commercial banks in the U.S. 
that are either willing or able to approve through their respective 
loan committees a $50,000,000 unguaranteed loan for a nonrecourse 
financing of a first-of-a-kind technology which loan cannot be 
syndicated or participated.
    The commenter suggests that the language should incorporate either 
``syndication'' or ``participation,'' such that a lender can syndicate 
and/or participate a portion of the lender's risk position. The 
commenter also suggests that the language which provides that lenders 
may syndicate a portion of its risk position to other eligible lenders 
be revised to provide syndication and/or participation to any 
accredited investor in order to make Sec.  4297.202(k) consistent with 
Sec.  4279.202(j).
    The commenter states that, in the context of the Bond Loan Model, a 
bond trustee holds title to and is the owner of 100 percent of the Bond 
Loan Note and the Collateral Documents securing the guaranteed and 
unguaranteed portions of the loan for the entire term of the loan. 
Additionally, a corporate trustee is the agent of and fiduciary for the 
bondholders, and the commenter states that the minimum retention 
requirements of Sec.  4279.202(k) should be deemed satisfied as a 
direct result of the corporate trustee reporting to and being 
controlled by the underlying bondholders in a way which permits and 
requires bondholders, subject to Agency retained rights, to exercise 
their rights as at-risk investors through the trustee. The commenter 
states that the notion that institutional bondholders working together 
with a corporate trustee are somehow less accountable to the Agency 
than an AgBank or other lending institution is simply unfounded. As 
evidenced by the one trillion dollar annual bond market, which utilizes 
the Bond Loan Model, there is a demonstrated confidence in and success 
rate for project finance utilizing the Bond Loan Model. Consequently, 
the commenter requests that the Agency deem the minimum retention 
requirement of the section 9003 program to be satisfied by a trustee 
acting on behalf of the bondholders when a financing is accomplished 
utilizing the Bond Loan Model.
    Based on the above, the commenter recommends revising Sec.  
4279.202(k) to read as follows: ``The provisions of Sec.  4279.77 apply 
to this subpart. Lenders may syndicate and/or participate a portion of 
their risk position to other eligible lenders or accredited investors 
provided that at no time during the life of the guarantee may the 
original lender hold an amount of the loan less than the amount 
required by Sec.  4279.77. The requirements of this section and Sec.  
4279.77 will always be deemed satisfied by a trustee where bonds are 
used to fund a guaranteed loan.''
    Response: The Agency recognizes the concerns raised by the 
commenters regarding the impact of a minimum retention requirement. 
Based on the Agency's lengthy experience, it believes that it is 
necessary for participating lenders to always retain a portion of the 
risk to ensure that the loans are properly serviced. The Agency also 
recognizes that the minimum retention requirement in the proposed rule 
did not strike a proper balance with respect to these concerns. As a 
result, the Agency has revised the minimum retention requirement to be 
similar to that found in the Business and Industry Guaranteed Loan 
program. The Agency notes that, given the size and complexity of 
projects under the Biorefinery Assistance Program, the minimum 
retention was increased from 5 percent to 7.5 percent.
    As previously stated, it is the Agency's position that its current 
authority does not permit a trustee, whether that trustee is an 
eligible lender or not, to just hold a beneficial interest for other 
lenders.

Guarantee Fee (Sec.  4279.226(a))

Fee Structure
    Comment: Several commenters believe that the current Agency fee 
structure is onerous for larger projects, and should be set at one flat 
fee as in

[[Page 8439]]

the other Agency loan guarantee programs. These fees need to be 
affordable for these types of projects. The Agency should not receive a 
fee based on the amount of equity that is contributed as long as the 
loan follows the minimum guidelines. The fees should be capped at the 
same amount, and because these are large projects, it should be no more 
than 0.5 percent. Having a fee in the 2 percent range adds tremendous 
pressure on debt financing that is already higher than usual because of 
the risk profile. Annual renewal fees should also be capped at 0.25 
percent.
    Response: The Agency disagrees with commenter. The Agency has 
structured the fees to address the risk and cost to the government.
    Comment: One commenter recommends that the guarantee fee set forth 
in Sec.  4279.226 be left subject to change in each Federal Register 
notice that announces the availability of funds. The actual subsidy 
rate cost of running this program may change as more information about 
the risks associated with it become clear, and because the projects 
that will be submitted are already controlled by a NOFA process, the 
Agency should retain the right to set a new fee structure with each 
NOFA. The commenter believes the Agency should not lock itself in to 
fees in the regulation.
    Another commenter believes the fee structure is reasonable in terms 
of requiring lower fees for lower dollar projects. The commenter 
suggested periodically reviewing whether the two percent fee for larger 
projects is warranted to ascertain its appropriateness as projects are 
funded.
    Response: The Agency generally agrees with commenters. The intent 
of establishing a specific guarantee fee in the rule is to provide a 
stated fee in the rule. However, the Agency does acknowledge there may 
be a time when a different guarantee fee may be required. Therefore, 
the Agency has revised the rule to allow it the option of adjusting the 
guarantee fee through the publication of a Federal Register notice.

Borrower Eligibility (Sec.  4279.227)

    Comment: One commenter states that the distinction between the 
proposed rule and the May 6, 2010 NOFA is the addition of the term 
``persons'' and the deletion of the term ``individuals.'' The proposed 
rule does not define the term ``persons''; however, the Section 9003 
NOFA and the May 6, 2010 NOFA define ``person'' to mean ``Any 
individual, corporation, company.'' With the term ``person'' now 
defined to include ``corporations'' that are ``citizens,'' then a 
``borrower'' for purposes of the section 9003 program seemingly can be 
owned by corporate or other types of entity shareholders at the first 
ownership level above the borrower, as corporations or other entities 
incorporated, organized or otherwise established in the U.S. have 
traditionally been held by our laws and courts to be U.S. citizens. 
This interpretation would then require no further ``look-up'' the 
ownership chain, as U.S. citizenship will have been legally established 
at the first ownership level above the borrower. However, the commenter 
states that in the May 6, 2010 NOFA the Agency unnecessarily goes a 
step further (this further step is also contained in the proposed rule) 
by adding a sentence stating: ``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.''
    According to the commenter, notwithstanding that the term 
``person'' includes a corporation that is a U.S. citizen, the Agency 
will continue to look-up the chain of ownership to determine the 
ultimate individual owners of such entity and the total percentage U.S. 
citizenship among them, ignoring that the corporate entity is a U.S. 
citizen. The commenter states that the Agency seemingly went out of its 
way to complicate and confuse the otherwise clear meaning of the term 
``person'' to require that a further test of U.S. ownership be 
undertaken by adding a seemingly endless upstream ownership analysis 
notwithstanding that these entities may be legally incorporated, 
organized or otherwise established entities of the U.S., which are 
legitimate U.S. citizens under long-established laws.
    The commenter states that this U.S. ownership restriction has no 
bearing on the creditworthiness of any borrower under the section 9003 
program. Rather, in the current adverse economic climate of diminishing 
numbers of available investors, and in light of President Obama's 
expressly stated dual intentions to (1) create 5 million new jobs from 
the renewable energy industries and (2) double the percentage of 
renewable energy in each of the three years between January 1, 2009 and 
January 1, 2012, these restrictions fly in the face of the 
Administration's clearly stated goals.
    The commenter, therefore, recommends that Sec.  4279.227(a)(2) 
either be deleted or revised to read as follows: (ii) Entities other 
than individuals must be at least 51 percent owned by persons who are 
either citizens as identified above or legally admitted permanent 
residents residing in the U.S.'' The commenter noted that comparable 
Department of Energy and Department of the Treasury loan guarantee and/
or grant programs do not contain similar citizenship restrictions.
    Response: As noted in a previous response, the Agency has 
reconsidered the citizenship requirement and has decided to eliminate 
this requirement from the final rule. Because we have removed this 
requirement, no action is required to address the commenter's concern.
    Comment: One commenter states that the proposed program does not 
include 501(c)(3) nonprofit organizations as an eligible applicant for 
the program and believes nonprofit organizations, because of their role 
in communities as being there for the good of all, can help showcase 
the biorefinery technology, support small local businesses through 
their purchasing power, and even encourage the startup of privately 
owned biorefineries.
    Response: Nonprofits can apply provided they meet the eligibility 
requirements.

Revenue From Sale of Advanced Biofuel Requirement (Sec.  4279.228(d))

    Comment: One commenter states that there are numerous scenarios 
whereby the only way to achieve financing for a new renewable fuel 
product is to make it and sell it into an alternative market because 
this approach achieves the lower risk level required by the investors 
and lenders. The commenter states that one example would be to convert 
biomass into methanol. Methanol is a promising and emerging fuel for a 
large class of fuel cells than can be used for stationary electricity 
generation, or as a means of recharging a battery in an electric car 
when a plug is not easily accessible. Or, for electric delivery 
vehicles that stop regularly, such fuel cells would be providing near-
real-time battery recharge. This would not be a typical gasoline 
replacement fuel scenario but achieves the same goals. While that 
market is emerging, the production volume that would make the 
biorefinery sufficiently efficient and therefore economically viable 
could likely exceed the near term need as fuel. In that case, the 
financing group could require that the biorefinery sell the methanol to 
biodiesel plants or as a replacement denaturant for ethanol production. 
Very few of these uses looks like a standard ``fuel'' business yet in 
all cases meets the intended overarching goals of the program which is 
the reduction of the imports of foreign

[[Page 8440]]

energy (especially given that the U.S. imports 100 percent of the 
methanol used in the U.S.). The commenter states that, as a result, 
this criterion should be dropped in its entirety and replaced with 
criteria that cover whether the product proposed replaces an existing 
fuel or energy intensive product and whether the replacement 
substitutes for an equivalent imported energy product. Examples of 
products where substitutes would meet this requirement are: oil (and 
refined products like gasoline, jet fuel, diesel), methanol, anhydrous 
ammonia (or other nitrogen derivatives such as urea), LPG/LNG. Any 
product that replaces any of these energy or energy intensive products 
should be equally allowed.
    Response: The Agency allows the sale of biobased products and 
byproducts. However, the project must demonstrate that the majority of 
the production is advanced biofuels, which corresponds with the intent 
of the authorizing legislation. Unless otherwise approved by the 
Agency, and determined to be in the best financial interest of the 
government, the advanced biofuel must be sold as a biofuel.
    Comment: One commenter states that, although the purpose and intent 
of this funding is for alternate fuel feedstock, the nature of algae as 
a feedstock puts producers in an unusual position: Algae produces many 
different biomass co-products and biocrude oil, both of which have 
marketability, whereas most feedstock sources result in one or two 
products. The commenter states that, while the 70 percent restriction 
is certainly appropriate for non-algae producers, it reduces the 
ability of algae producers to develop additional revenues from which it 
can pay down its loan (and consequently reduce the amount of funds 
being guaranteed). The commenter proposes that algae producers be 
excluded from the requirement that 70 percent of its revenue must be 
from the sale of advanced biofuels. If that is not possible, a suitable 
compromise would be that at least 50 percent of what algae producers 
produce be dedicated to the sale of advanced biofuels and that the 
proceeds (gross vs. net could be determined based on percentage) of the 
sale of all co-products must be used to pay down the debt being 
guaranteed. The loan covenants and business plans would have to address 
the pricing differentials and percentage ratios in entering into the 
required off-take contracts.
    The commenter believes that this solution more specifically mirrors 
the original intent, as stated in the definition of `biorefinery' in 
the 2008 Farm Bill.
    Response: The Agency disagrees with the commenter to develop a 
separate threshold for algae producers. As noted above, the Agency has 
removed revenue as the standard of measurement, and the rule has been 
modified to require that a majority of the biorefinery production is 
advanced biofuels. When the biobased product and any byproduct have an 
established BTU content from a recognized Federal source, majority 
biofuel production will be based on BTU content of the advanced 
biofuel, biobased product, and any byproduct. When the biobased product 
or any byproduct does not have an established BTU content, majority 
biofuel production will be based on output volume, using parameters 
announced by the Agency in periodic Notices in the Federal Register, of 
the advanced biofuel, biobased product, and any byproduct.

Cash Equity Requirement (Sec.  4279.228(e))

Equity Sources
    Comment: Several commenters recommend allowing all sources of 
equity available to the project when calculating the equity percentage 
for the project. These projects have large equity requirements, and 
should be allowed to utilize advanced carbon credit sales, subordinated 
debt, preferred stock or loans from investor-owners, New Markets Tax 
Credits, sale of accelerated depreciation, and other means of securing 
the large amount of capital that is needed to provide the equity 
component. There is currently a bill in Congress to provide the 30 
percent grant by Treasury for biofuels production in lieu of the ITC/
PTC credits. As a part of implementing that program, the requirements 
for application and approval of that program need to be changed to 
allow Treasury to supply a letter of pre-approval for the project that 
can be used as a financeable instrument in this process. Currently, 
this grant is applied for and paid 60 days after the project is 
commissioned. To be able to properly use this incentive, it is 
imperative that the legislation and approval process be changed to 
provide a financeable instrument that can be recognized as collateral 
by the financing community at the beginning of the project.
    Response: The Agency will consider a wide variety of assets as 
equity. However, in order to control risk, an asset used as equity, for 
the purpose of this regulation, must be available at the time of 
closing.
    Comment: One commenter states that the 20 percent proposed minimum 
cash equity requirement is acceptable and appropriate. The commenter 
states that, given the size of the projects, there are no investors 
that are truly able to invest in such projects with the expectation of 
losing funds. Twenty percent of $100 million project ($20 million) is a 
real and meaningful commitment by an investor or investor group. A 
higher amount of investment does not actually achieve any higher level 
of commitment since the amount is already so high. These amounts are 
also too large for a venture investor given that the project returns do 
not meet their high return requirements (usually 40 percent) and so 
these applications will only see project equity investors whose $20 
million represents a very real commitment. Hence, by requiring only 20 
percent equity and not offering more points for a larger percentage, 
the Agency can rest assured that sufficient project due diligence will 
have been performed. When calculating total equity in the project, 
technology contributions and in-kind services should be counted for any 
amount above the 20 percent minimum cash equity requirement.
    Response: The Agency does score projects based on the level of 
financial participation by the borrower. In addition, the Agency will 
consider, for existing biorefineries only, the value of intellectual 
property based on the value identified on its audited financial 
statement, prepared in accordance with GAAP. Given the potential size 
and complexity of these projects, the risks inherent in projects 
attempting to commercialize new and emerging technologies make in-kind 
contributions unsuitable for inclusion in the equity calculation.
    Comment: One commenter states that, as with cost-sharing in the 
grants context, consideration should be given to a borrower's 
contributions of land, personal property, intellectual property, and 
other assets. The Agency could use the type of ``equity'' composing the 
20 percent (or the borrower's contribution in general) as part of the 
scoring criteria, but contributions of assets other than cash should 
not operate to disqualify a project for failing to meet eligibility 
criteria.
    Two other commenters recommend considering existing equipment, 
building, and land at appraisal value when calculating the equity 
requirements of the borrower.
    Response: The Agency agrees with the commenters to the extent that, 
for existing biorefineries, qualified intellectual property, equipment, 
and

[[Page 8441]]

real property can be considered in meeting the equity requirement, as 
described in Sec.  4279.234(c)(1). The Agency will consider the value 
of qualified intellectual property based on the value identified on its 
audited financial statement, prepared in accordance with GAAP. The 
Agency notes that a loan guaranteed under the program may only finance 
80 percent of the eligible project costs. The borrower needs to provide 
the remaining 20 percent from other non-Federal sources to complete the 
project.
    Comment: Two commenters state that the requirement for a 20 percent 
cash infusion will impose a significant burden that may render many 
otherwise well-qualified projects unable to secure financing. Any 
applicant that brings a project to the stage where it is able to 
achieve financial closing will, by virtue of the selection criteria, 
have incurred significant pre-closing costs that will not take the form 
of real property that can be collateralized. This is especially likely 
to be the case with projects that make use of new technology or new 
feedstock, endeavors that are especially likely to require up-front 
commitments of capital. The commenters state that it would be 
appropriate, in the scoring of applications, to grant extra points to 
those applicants that commit to provide cash equity at closing, thereby 
enhancing the competitive position of their proposals; however, the 
posting of this equity commitment should not be an absolute threshold 
requirement for participation, as this would have the effect of 
removing many otherwise-worthy projects from consideration.
    The commenters recommend eliminating the requirement for 20 percent 
cash equity and allowing applicants to include preconstruction costs as 
contributed equity.
    One commenter believes that the requirement that the project must 
have cash equity of not less than 20 percent of eligible project costs 
should be changed to allow for non-cash equity, and that ``eligible 
project costs'' should not include goodwill or non-proven or non-
benchmarked technologies. The commenter states that the latter could be 
included as a portion of the required equity, but that they believe 
that the demise of the dotcom industry lay in the fact that values were 
attributed to unproven ideas and that they are not interested in 
allowing history to repeat itself, especially with something as 
important as energy security.
    Response: The Agency disagrees with removing the 20 percent cash 
equity requirement. The Agency may consider, for existing biorefineries 
only, qualified intellectual property, equipment, and real property in 
meeting the equity requirement, as described in Sec.  4279.234(c)(1). 
The Agency notes that, by statute, a loan guaranteed under the program 
may only finance 80 percent of the eligible project costs. The borrower 
needs to provide the remaining 20 percent from other non-Federal 
sources to complete the project.

Guaranteed Loan Funding (Sec.  4279.229)

    Comment: One commenter recommends that borrowers be permitted in 
all cases to access the tax exempt capital markets, including when 
necessary through state authority issuance vehicles. The commenter 
states that tax-exempt project debt appears permitted, but should be 
explicitly allowed for both the guaranteed and unguaranteed portions. 
According to the commenter, projects should be afforded every 
opportunity to lower interest costs, especially by way of Federal, 
state and local programs designed to meet regional and national 
priorities such as the Gulf Opportunity Zone bond programs.
    Response: Tax-exempt debt cannot be part of the guaranteed loan, 
which includes the unguaranteed portion of the loan. To support 
consistency between this program and the B&I guaranteed loan program 
and to eliminate any duplicative Federal assistance, the Agency has 
determined that it would be inappropriate to distinguish between 
guaranteed and unguaranteed portions of the loan when applying this 
provision.

Guaranteed Loan Funding (Sec.  4279.229(a))

    Comment: One commenter recommends not limiting the availability of 
funds as set forth in Sec.  4279.229(a). Once a NOFA is issued, all 
funds should be available rather than have half of the funds reserved. 
If the idea is to get viable advanced biorefinery projects financed, 
the commenter believes they should be financed as they are submitted 
rather than potentially be required to wait for a second funding 
period.
    Response: The authorizing legislation states: ``Of the funds made 
available for loan guarantees for a fiscal year under subsection (h), 
50 percent of the funds shall be reserved for obligation during the 
second half of the fiscal year.'' Therefore, the Agency cannot 
accommodate the commenter's request.
    Comment: One commenter points out that the program has statutory 
minimum funding requirements and an ability to add discretionary funds 
and, in order to maximize the benefits of the program, recommends that 
the Agency authorize the maximum funding (statutory and discretionary) 
in each fiscal year.
    Response: The Agency points out that it is Congress, not the 
Agency, who is authorized by statute to provide discretionary program 
funds. It is the Agency's intent to maximize funding on this program 
based on Congress's appropriations.
    Comment: One commenter recommends that the Agency provide a Web 
page for the program that shows a running tally of funds expended and 
funds remaining available on any given day. This should be represented 
as the actual dollars authorized (and remaining) and the total amount 
of loan guarantee these dollars represent as authorized (and remaining) 
because these numbers are different. The available loan guarantee 
amount is the one that is of most relevance and interest for proposed 
project sponsors and lenders.
    Response: Projects funded are announced by the Agency on its Web 
site. At this time, the Agency does not have the administrative 
resources to assume the burden associated with maintaining and 
verifying the accuracy associated with the suggested Web page. As this 
request would not require a rule change, none has been made.

Guaranteed Loan Funding (Sec.  4279.229(b))

    Comment: Six commenters recommend offering guarantees of 90 percent 
of the total loan amount. Each commenter points to the authorizing 
legislation, which authorizes the Agency to offer loan guarantees up to 
90 percent. Concerns identified by the commenters include:
    1. The level of guarantees in the proposed rule may be appropriate 
for existing, commercially available technologies. But they do not 
provide sufficient risk reduction for new, emerging technologies. That 
is why the authors of the statute specified in Section 9003, paragraph 
(e)(2)(B)(iii) that ``The Secretary may guarantee up to 90 percent of 
the principal and interest due on a loan guaranteed under [this] 
subsection.''
    2. Low guarantee amounts, such as those proposed by the Agency, 
limit the number of lenders who will be willing to assume the risks 
associated with the high capital costs of building and operating a 
facility that employs a new, first-of-a-kind technology that has not 
been commercially proven. This makes capital harder to get, and means 
fewer projects will be funded. As a result, new technologies will be 
deployed much more slowly. The public interest is not served by this 
approach.

[[Page 8442]]

    3. Guarantee amounts less than 100 percent create an additional 
burden for first-of-a-kind technology projects by requiring the nearly 
impossible task of placing unguaranteed debt in the market. While 
commenters believe that funding these unguaranteed portions of debt 
might be possible in the taxable and tax exempt bond markets, it is not 
at all clear that the very tight credit market will in fact be 
receptive to unproven technology risk. There is, therefore, a real risk 
that projects could succeed in obtaining an Agency loan guarantee, yet 
end up failing to fund the unguaranteed debt in any market and fail to 
secure financing.
    4. Without a 90 percent guarantee, it is unlikely that first-of-a-
kind technology projects will secure financing.
    5. At a 90 percent level, the amount of unguaranteed debt could be 
more easily placed in the market and should keep lenders with some 
``skin'' in the deal. One commenter points out that the Senate version 
of this program provided for a 100 percent guarantee. The guarantee was 
reduced to 90 percent in conference committee due to pressure from 
House negotiators who felt that not only project developers, but banks 
as well, should have ``some skin in the game.''
    6. The decision to limit the guaranteed percentage to 60 to 80 
percent with a maximum of 60 percent for loans greater than $125 
million leaves a significant amount of unguaranteed debt that banks are 
not willing to accept.
    One commenter suggests as an alternative, loan guarantee 
percentages could be adjusted higher depending upon the specific 
circumstances of a project. For example, a maximum guarantee could be 
offered under conditions when a high ratio of equity investment is 
secured, where the use of proven technology removes technology risk, 
and where there is a demonstrated ability to accelerate return on 
investment.
    Two commenters believe that with the oil spill in the Gulf, prices 
at the pump creeping up in preparation for the summer travel season, 
two wars in the Middle East, and a U.S. Department of Energy loan 
guarantee program that has to date proven unworkable for financing 
biorefineries, the U.S. can no longer delay efforts to commercialize 
promising technologies that can lessen our impact on the environment 
and increase our energy security.
    One commenter recommends that the loan guarantee percentage be a 
maximum of 90 percent per the statute. The commenter states that they 
make this recommendation based on their experience seeking debt 
financing for their project. The commenter states that they have been 
told by most lenders that 80 percent is insufficient, given that the 
lender must hold no less than 50 percent of the unguaranteed portion of 
the loan. At an 80 percent guarantee, that represents 10 percent of the 
total loan. Unlike venture capital, banks are in the business of 
lending without the expectation of a loss of capital. When combined 
with the Agency first lien proposal, the guarantee is not perceived as 
much of a guarantee by the bank holding the unguaranteed portion. Given 
the perceived technology risk, the bank perceives that they are taking 
a 10 percent capital risk in such a deal. As a result, the program 
requirements are not in alignment with the banking industry 
requirements for lending. In addition, the maximum percentage should 
not decrease with the size of the loan. As it has been implemented in 
the NOFAs, projects larger than a certain size, will only achieve a 
lower percentage guarantee. Given the conflicts noted above with 
standard banking criteria, these larger projects cannot be financed. 
Too much would be at risk for the bank and hence they cannot do the 
deal. At the same time, equity investors cannot make up the difference 
because doing so will increase the require IRR to a level that is not 
achievable. Hence, the guarantee percent should be 90 percent no matter 
whether it is a $40 million loan or a $250 million loan.
    Response: The Agency has revised the rule to allow a guarantee of 
90 percent for guaranteed loans of $125 million or less. The rule also 
outlines the criteria the project must meet to obtain a 90 percent 
guarantee, as well as the guarantee fee for loans obtaining a 90 
percent guarantee. In the Agency experience there is greater loss 
exposure with larger loans; therefore, if the loan does not meet the 
requirement to issue a 90 percent guarantee, the percent of guarantee 
will be based on loan size. In addition, with regard to this comment, 
the Agency continues to support consistency between this program and 
the Business and Industry guaranteed loan program.
    Comment: Several commenters state that the guarantee fees should be 
consistent at 90 percent, as set by the 2008 Farm Bill. There is no 
provision for the lesser guarantees. To raise the 20 percent or more 
equity that is required and to find lending institutions to fund the 
remaining debt, it is imperative that the guarantee be raised to the 90 
percent level that was legislated by Congress. Recent success with the 
additional B&I Loan Guarantee appropriation in the ARRA (which had up 
to a 90 percent guarantee, and reduced or no fee structure) resulted in 
the program being totally subscribed ahead of the September 30, 2010 
deadline for use of these funds. This shows that the lending community 
will utilize these types of programs with this higher level of credit 
enhancement.
    Response: The Agency has revised the rule to allow a guarantee of 
90 percent for guaranteed loans of $125 million or less. The rule also 
outlines the criteria the project must meet to obtain a 90 percent 
guarantee, as well as the guarantee fee for loans obtaining a 90 
percent guarantee. In the Agency experience there is greater loss 
exposure with larger loans; therefore, if the loan does not meet the 
requirement to issue a 90 percent guarantee, the percent of guarantee 
will be based on loan size. In addition, with regard to this comment, 
the Agency continues to support consistency between this program and 
the Business and Industry guaranteed loan program.

Guaranteed Loan Funding (Sec.  4279.229(c))

    Comment: One commenter states that, rather than define a maximum 
amount of $250 million to a given borrower under the program in any 
given fiscal year, it should only be an initial threshold. In the event 
that there are budget funds remaining after all other eligible projects 
have been reviewed, and a borrower has already borrowed $250 million, 
that borrower should be allowed to borrow additional guaranteed funds 
in that same fiscal year. This flexibility will allow equal access to 
the program and yet allow the best borrowers who have more than one 
excellent project to participate at a higher level. This will also 
allow the program to achieve its maximum potential in the shortest 
possible time. Under this same provision, the commenter recommends that 
more than one similar project be eligible for the extended funds. The 
commenter states that, for example, their core technology is based on 
oxygen gasification of biomass to produce syngas. There are three fuels 
that their analysis indicates are viable in the marketplace: anhydrous 
ammonia, methanol and dimethyl ether. Although they would each leverage 
the same core gasification technology, they would each address 
different fuel market opportunities and each should be allowed 
simultaneously under the program until they have been proven at 
commercial scale.
    Response: During these early program years, the Agency believes 
that it is

[[Page 8443]]

prudent to diversify its risk, to allow more entities to participate, 
to assist a more diverse group of applicants, and to provide assistance 
to geographically separate areas. To this end, the Agency prefers to 
carry over funds, if available, to the next fiscal year rather than to 
give an already funded entity more money in that fiscal year. 
Therefore, the Agency has not revised the rule in response to this 
comment.

Guaranteed Loan Funding (Sec.  4279.229(d))

    Comment: One commenter states that the proposed rule limits the 
guaranteed percentage to 60 percent for loans greater than $125 
million, even though Congress authorized the Agency to provide 
guarantees of up to 90 percent for the entire loan amount. Given that 
commercial-scale cellulosic projects will exceed this $125 million 
threshold and because these are first-of-kind projects, limiting the 
guaranteed percentage to 60 percent creates a higher level of risk for 
many lenders, and could result in projects not being able to secure the 
non-guaranteed portion from the marketplace. This is compounded by 
additional restrictions on lenders discussed elsewhere. The commenter, 
therefore, urges the Agency to implement the program to the fullest 
extent authorized by law and allow a 90 percent guarantee on the full 
loan amount regardless of size.
    One commenter states that section 9003 permits guarantees of up to 
90 percent of the principal and interest, but noted that Sec.  4279.229 
provides for guarantees of a lower amount. The level of guarantees may 
be appropriate for existing, commercially available technologies; 
however, these levels fall significantly short of providing sufficient 
risk reduction for new, emerging technologies, and will not incentivize 
private institutions to lend. Low guarantee amounts limit the number of 
lenders who will be willing to assume the risks of capital-intensive, 
first-of-their-kind projects. As a result, entire fledgling industries 
may disappear and technologies will be deployed slowly and perhaps not 
at all.
    The commenter states that the rule should provide for the full 90 
percent guarantee for the principal and interest up to $250 million 
and, at a minimum, should provide for a 90 percent guarantee of up to 
$125 million and 80 percent guarantee of principal and interest up to 
$250 million. The commenter states that it is important to note that 
the Senate version of the program provided for a 100 percent guarantee. 
The guarantee was reduced to 90 percent in conference due to House 
negotiators wanting project developers and lenders to have some ``skin 
in the game.'' This is not objectionable, but the intent of Congress 
was clear that the guarantee of a significant amount of the loan is 
necessary for lenders to finance new technologies.
    Two commenters state that insufficient or too low loan guarantee 
amounts create a major hurdle for first-of-kind technology projects by 
requiring the placement of significant amounts of unguaranteed debt in 
very challenging markets. The commenters believe that funding 
unguaranteed portions might be possible in the taxable and tax exempt 
bond markets, but that it is not at all clear that these volatile 
markets will in fact be receptive to unproven technology project risk. 
There is, therefore, a very real risk that projects that succeed in 
obtaining a partial Agency loan guarantee nevertheless end up failing 
to fund the unguaranteed portion in any market. Furthermore, the tiered 
structure of the guarantee levels is based solely on the size of the 
loan amount, without regard to overall capital structure. This can 
create a situation where the Agency guarantee is exposed to a 
disproportionate share of project risk relative to private capital. For 
example, on a $200 million project, with a capital structure of 75 
percent debt and 25 percent equity, the Agency guarantee covers 60 
percent of the loan amount, or $90 million. This reflects nearly double 
the investment of equity providers. However, if the guarantee 
percentage were based on the capital structure, with the guarantee 
percentage growing to 80 percent on projects that have a minimum of 40 
percent equity, the Agency's exposure on the project is the same, at 
$90 million, and yet less than the exposure of equity providers.
    The commenters recommend adhering to the statutory language to 
provide maximum flexibility for project finance and suggest adopting a 
tiered guarantee coverage based on the overall capital structure, for 
example:

------------------------------------------------------------------------
     Minimum equity  percentage         USDA guarantee level (percent)
------------------------------------------------------------------------
                      50                                   90
                      40                                   80
                      30                                   70
                      20                                   60
------------------------------------------------------------------------

    This structure would allow the Agency to more fully employ its 
statutory ability to covering up to 90 percent of a loan for strong 
projects with a significant equity, where private capital contributions 
are strong. For large projects, as most commercial scale advanced 
biorefinery projects will be, it still affords a sizeable unguaranteed 
exposure to lenders. This will ensure adequate risk sharing and, 
therefore, due diligence by private capital sources whether in the form 
of unguaranteed loans or equity participation.
    One commenter states that the percentage of the loan guarantee 
should not be limited beyond what the statute sets forth by amount or 
otherwise. Lowering the percentage for larger loans would unfairly 
penalize new technology and feedstock that, by the nature of being new, 
require larger initial funding. In an already difficult lending 
environment, the proposed limitations would have a deleterious effect 
on economic-growth oriented innovation. The rural credit crunch has 
made it imperative for the Agency to guarantee a very high percentage 
of project costs or offer significant grants in conjunction with those 
guarantees. The construction of large biofuels facilities should be 
encouraged.
    One commenter believes that the purpose of the loan guarantee 
program should be to bring alternative energy technologies on line as 
quickly as possible. Regrettably, current loan guarantee guidelines, 
while perhaps appropriate for existing, commercially available 
technologies, do not provide sufficient risk reduction where they are 
needed most--in the commercial demonstration of new advanced biofuel 
technologies. That is why the authors of the statute specified that the 
secretary may guarantee up to 90 percent of the principal and interest 
due on the a loan guaranteed under this subsection (Sec. 
9003(e)(2)(B)). Therefore, the rule should be modified to allow for 
guarantees up to the maximum amount allowed by statute: 90 percent of 
all loans up to $250 million. If the Agency wishes to require a first 
lien position, then a guarantee of up to the 90 percent level is 
certainly warranted for loans intended to assist these emerging 
technologies at the pilot or commercial demonstration stage.
    One commenter questions whether the guarantee amounts are too low 
based on size of the project (e.g. 70 percent on loans over $80 
million; 60 percent over $125 million). Because these may be larger 
dollar projects, they may easily top $125 million in project costs. A 
60 percent loan requirement seems too low to attract private funding 
given the unproven aspects of commercializing the new technologies. The 
commenter suggests that a portion of Agency funds should be reserved to 
provide a higher guarantee percentage on at least a couple of larger 
projects if projects

[[Page 8444]]

cannot be funded with lower guarantee amounts.
    One commenter states that the Agency should consider applying the 
20 percent non-guaranteed requirement across the board, and not 
decrease the percentage guaranteed as the amount of the debt increases, 
as currently proposed in Sec.  4279.229. By decreasing the amount 
guaranteed by the Agency as the principal amount of the loan increases 
(as currently proposed), borrowers will be less likely to find an 
eligible lender that is willing to retain the un-guaranteed debt. At 
the maximum level of $250,000,000 (resulting in a 60 percent guaranty), 
a lender would be required to retain at least $50,000,000 of the loan 
(50 percent of the non-guaranteed portion), assuming the lender is able 
to find participants for the other 50 percent of the non-guaranteed 
debt, and possibly the full $100,000,000 if no participants are found. 
The commenter states that the likelihood of finding eligible lenders 
that are willing to participate at these levels is extremely unlikely.
    Response: The Agency has revised the rule to allow a guarantee of 
90 percent for guaranteed loans of $125 million or less. The rule also 
outlines the criteria the project must meet to obtain a 90 percent 
guarantee, as well as the guarantee fee for loans obtaining a 90 
percent guarantee. In the Agency experience there is greater loss 
exposure with larger loans; therefore, if the loan does not meet the 
requirement to issue a 90 percent guarantee, the percent of guarantee 
will be based on loan size. In addition, with regard to this comment, 
the Agency continues to support consistency between this program and 
the Business and Industry guaranteed loan program.

Eligible Project Costs (Sec.  4279.229(e))

    Comment: One commenter recommends expanding the eligible loan 
purposes listed in Sec.  4279.229(e) to allow debt refinancing on 
existing advanced biorefineries. Any assistance this program can bring 
to this emerging sector should be authorized, and debt refinancing on 
existing projects that may need workout assistance should not be 
excluded.
    Response: While the program is meant for first-of-a-kind 
technology, the Agency agrees that there may be some refinancing 
projects that may be suitable for potential funding. Therefore, the 
Agency will consider refinancing as an eligible project purpose under 
two situations (see Sec.  4279.228(g)). The first situation is where 
permanent financing is used to refinance interim construction financing 
of the proposed project only if the application for the guaranteed loan 
under this subpart was approved prior to closing the interim loan for 
the construction of the facility. The second situation is where 
refinancing is not more than 20 percent of the loan for which the 
Agency is guaranteeing and the purpose of the refinance is to enable 
the Agency to establish a first lien position with respect to pre-
existing collateral subject to a pre-existing lien and the refinancing 
would be in the best financial interests of the Federal Government.

Guaranteed Loan Funding (Sec.  4279.229(e)(6))

    Comment: One commenter recommends including the section 9003 
guarantee fee as an eligible loan purpose, contrary to what is stated 
in Sec.  4279.229(e)(6). The commenter believes there is no reason to 
exclude this purpose, which is offered in the B&I program and other 
Agency guaranteed programs.
    Response: The Agency disagrees with commenter. As noted in previous 
responses, the Agency is focusing the program's limited funding 
resources on core project costs, such as construction costs, in order 
to fund more projects.

Interest Rates (Sec.  4279.231)

    Comment: One commenter states that the rules on interest rates in 
Sec.  4279.231 are too elaborate and complex. The commenter asks why 
not simply stick with the proven, viable regulations found in 7 CFR 
part 4279, subpart B? According to the commenter, consistency between 
guaranteed loan programs should be maintained for simplicity and 
consistency's sake unless something about a program absolutely requires 
deviation. The commenter believes there is no reason to believe 
advanced biorefinery interest rate protocols are different than other 
business loan pricing.
    Response: The Agency has revised the interest rate provisions to 
more closely match the requirements in Sec. Sec.  4279.125 and 
4287.112, while providing lenders with some flexibility in establishing 
loan type and terms on the unguaranteed portion.

Interest Rates (Sec.  4279.231(a)(1))

    Comment: One commenter recommends modifying the amortization 
requirements for commercial loans for first-of-kind technology to allow 
a 5- to 10-year non-amortizing period with annual amortization after 
the non-amortizing period.
    Response: The Agency disagrees with the comment. In accordance with 
Sec.  4279.126(b), interest only payments are allowed for up to three 
years. Interest only payments for up to ten years substantially 
increases Agency risk in the event of default by not reducing the 
principal balance and the commensurate decline in collateral value.

Interest Rates (Sec.  4279.231(a)(2))

    Comment: Three commenters state that bank project financing is most 
efficiently provided on a floating rate basis during the construction 
period, given the difficulty of setting a fixed rate on future loan 
disbursements over a long construction period. Bond investors, however, 
typically require fixed rate issuance. The commenters recommend 
allowing the interest rates on the guaranteed and unguaranteed portions 
to be fixed or floating without requiring both portions to be on the 
same basis. An appropriate (and conventional) additional requirement to 
minimize interest rate exposure for a given project would be to the 
extent the project company borrows on a floating rate basis for all or 
a portion of the loans, it will enter into interest rate management 
agreements that reduce interest rate risk during the life of the 
project.
    One commenter states that, under the Commercial Loan Model, it is 
likely that any portion of a loan purchased or funded by a commercial 
bank will bear interest at a variable rate such as the Prime Rate or 
the LIBOR, while any portion of the loan funded or purchased by an 
institutional investor will likely bear interest at a fixed rate. 
Accordingly, the commenter recommends amending Sec.  4279.231 to 
provide as follows:
    (2) The interest rate for both the guaranteed and unguaranteed 
portions of the loan must be the same type (i.e., both fixed and 
variable). For this purpose, a variable interest rate loan may be 
converted to a fixed rate through the use of an interest rate hedge or 
cap so long as such hedge or cap is for maturity of the obligation.
    Response: The Agency has revised the interest rate provisions to 
more closely match the requirements in Sec. Sec.  4279.125 and 
4287.112, while providing lenders with some flexibility in establishing 
loan type and terms on the unguaranteed portion. The rule identifies a 
cap by requiring that the rate on unguaranteed portion of the loan not 
exceed the rate on the guaranteed portion of the loan by more than 500 
basis points.

Interest Rates (Sec.  4279.231(a)(3))

    Comment: Several commenters recommend allowing the guaranteed

[[Page 8445]]

and unguaranteed portions of the loan to have different interest rates, 
determined by the market and what is currently available to the 
borrower and the lender, not an arbitrary blended rate of 1 percent. 
There is tremendous risk associated with the unguaranteed portion of 
the loan, and the borrower must be allowed to work with the lender to 
provide an acceptable solution for all parties without artificial 
constraints by the section 9003 regulations, including the ability to 
further enhance the unguaranteed portion by the use of additional 
equity, letters of credit, personal or corporate guarantees, warrants, 
or any and all other credit enhancements.
    Another commenter also recommends allowing different rates for the 
guaranteed versus unguaranteed portions of the loan and allowing the 
market to make the determination, given that the perceived risk for 
guaranteed versus unguaranteed risk is a purely market-based 
phenomenon, and changes from time to time. In the Loan Guarantee 
Conditional Commitment agreement, a maximum percentage could be 
specified and tolerated, with that percentage being determined by the 
maximum rate that still allows the project to be financially successful 
based on the submitted pro formas. The determination of this figure 
could be a requirement of the application process to be determined by 
the lender as part of the normal due diligence and sensitivity 
analysis.
    Response: As noted in a previous response, the Agency has removed 
the proposed blended interest rate requirement from the rule. By 
changing the minimum retention requirement and by allowing for a 90 
percent guarantee for guaranteed loans of $125 million or less, the 
Agency has eliminated the need for the other credit enhancements for 
the unguaranteed portion of the loan.
    Comment: One commenter notes that, as proposed, interest rates 
charged must be in line with other similar guaranteed loans and blended 
rates on the entire guaranteed loan cannot exceed the rate on the 
guaranteed portion of the loan by more than 1 percent. The commenter 
questions these stipulations and believes the question of what rates to 
charge should be left to the marketplace, particularly given the lower 
guarantee percentage envisioned of 60 percent for larger loans, the 
high level of borrower equity required of 20 percent and the riskiness 
of commercializing unproven technologies. The Agency should remove 
interest rate requirements because the Agency will be able to review 
the interest rate levels and make a determination down the road if 
certain interest rates are too far out of line. Viable projects will 
have strong competition among lenders, which will keep interest rates 
as low as possible to cover the lender's costs and ensure adequate 
returns.
    Response: The Agency has revised the interest rate provisions to 
more closely match the requirements in Sec. Sec.  4279.125 and 
4287.112, while providing lenders with some flexibility in establishing 
loan type and terms on the unguaranteed portion.
    Comment: One commenter states that market-based interest rate 
differentials on the guaranteed and unguaranteed portions of debt will 
be significant, especially for the first-of-a-kind projects this 
program seeks to promote (this differential reflecting the difference 
between a AAA-rated, full faith and credit guarantee of the United 
States on one hand and sub-investment grade-rated technology project 
debt on the other). Any limitation on this spread will prevent the 
market from properly pricing the unguaranteed portion of the debt and 
may make placement impossible. The commenter believes the Agency should 
eliminate the proposed 1 percent limitation on the interest rate 
differential between the guaranteed debt and overall blended debt, 
since it fails to reflect the wide difference in credit risk to the 
holders of the guaranteed and unguaranteed portions.
    One commenter notes that, over the 10-year period from May 2000 
through May 2010, the spread between the AAA and B indices has been 
approximately 532 basis points and the spread between the AAA and BB 
indices has been approximately 335 basis points. The underlying credit 
rating of a biorefinery is reflective of the lack of investment grade 
off-takes or related purchase contracts that might otherwise elevate 
the underlying credit level of the biorefinery to investment grade 
(that is, BBB or greater). Consequently, the commenter suggests it 
would be a rare occurrence that the blended rate on the entire 
guaranteed loan would not exceed the rate on the guaranteed portion of 
the loan by more than 1 percent. The commenter states that without 
over-collateralizing the unguaranteed portion of the loan, it is not 
likely that the spread differential on the guaranteed and unguaranteed 
portions of the loan will ever be within 1 percent. Therefore, the 
commenter recommends deleting Sec.  4279.231(a)(3).
    Several other commenters recommend eliminating the current proposed 
1 percent rate differential between guaranteed and non-guaranteed 
portions of the debt.
    One commenter states that banks have told them that the provisions 
limiting the delta between the interest rate on the guaranteed portion 
of the loan and the weighted average interest rate of the full loan 
amount to 1 percent gives them significant pause in moving forward. 
Lenders would like to be able to set the interest rate for the non-
guaranteed portion at market rates.
    One commenter states that, because the guaranteed portion is 
secured by the United States, it is unrealistic to expect market rates 
for the guaranteed and non-guaranteed portions to be within 1 percent 
of each other.
    One commenter states market-based interest rate differentials on 
the guaranteed and unguaranteed portions will be significant, 
reflecting the difference between a AAA-rated, full faith and credit 
guarantee of the United States on the one hand and sub-investment grade 
rated technology project debt on the other. (Current market 
differentials are estimated to be greater than 6.0 percent.)
    One commenter states that the blended rate method also gives a 
disadvantage for the larger loans; since the percentage of guarantee is 
less, the difference in the interest rates between guarantee and 
unguaranteed must be less than for the smaller loans with a higher 
percentage of guarantee. The interest rate on the unguaranteed portion 
will be influenced by many factors; lenders will have to price it on a 
case by case basis; and it could vary substantially depending on the 
financial strength, type of technology, size of loan, type of lender, 
etc., so the government should let the market determine what that 
interest rate difference should be on the unguaranteed portion.
    Response: The Agency has revised the interest rate provisions to 
more closely match the requirements in Sec. Sec.  4279.125 and 
4287.112, while providing lenders with some flexibility in establishing 
loan type and terms on the unguaranteed portion. The rule now states 
that the rate on unguaranteed portion of the loan shall not exceed the 
rate on the guaranteed portion of the loan by more than 500 basis 
points.

Terms of Loan (Sec.  4279.232(a))

    Comment: One commenter recommends that the maximum term be the 
useful life of the project, not 20 years or 85 percent of its life as 
set forth in Sec.  4279.232(a). The 9003 program should promote 
financing, and setting shorter terms does not do this. A lender may 
elect to use a more conservative term, but the program should at least 
be

[[Page 8446]]

willing and able to go to the limit of the project's useful life.
    Response: Due to the risk associated with these new and emerging 
technologies, the Agency disagrees with using useful life solely. The 
Agency considers 20 years an appropriate maximum term for loans under 
this program. However, the Agency has revised the rule to allow either 
20 years or useful life of the project (removing the ``85 percent'' 
provision associated with useful life), whichever is less.

Credit Evaluation (Proposed Sec.  4279.233)

    Comment: Three commenters state that commodity projects, especially 
fuels facilities, are typically able to obtain low cost, highly 
efficient working capital loans from specialist lenders secured by 
inventory and receivables. Two of the commenters also note that, as 
proposed, a borrower is required to receive a first priority pledge of 
collateral including, potentially, working capital. These loan/debt 
facilities are usually entered into just prior to, or just after, 
commencement of operations. The proposed rule making does not 
contemplate the use of traditional working capital loans separately 
secured by inventory or receivables. The commenter recommends allowing 
collateral carve outs for inventory and receivables pledged to working 
capital lenders.
    Response: The Agency is agreeable to allowing working capital 
loans, not guaranteed by the Agency, which are secured by the inventory 
and accounts receivable. The Agency may consider a subordinate lien 
position on inventory and accounts receivable for working capital loans 
under certain conditions.
    Comment: Two commenters recommend making the maintenance of 
adequate working capital levels a post-completion requirement. In other 
words, allow time during the construction period for complete analysis 
and funding of the project's working capital requirements, including 
negotiation of working capital loans from specialist lenders.
    Response: The Agency disagrees with making maintenance of adequate 
working capital levels a post-completion requirement. To minimize risk, 
the Agency requires that all applicants are adequately capitalized at 
the time of application. Subsequently, borrowers are free to seek 
additional working capital sources post-application.

Construction Planning and Performing Development (Sec.  4279.256)

    Comment: One commenter states that the traditional commercial 
lending process for construction projects is different than that 
providing either development or working capital funds, in that 
construction lenders traditionally require a commitment for ``take-
out'' or permanent financing upon completion of the construction. The 
commenter recommends amending the requirements for construction 
projects to require ``take-out'' financing commitments for all 
construction projects.
    Response: The Agency agrees that a requirement for take-out 
financing is needed, and has added a provision addressing permanent 
financing as described in the interim rule at Sec.  4279.228(g)(1) in 
the context of a refinance of interim construction financing under 
certain conditions. Therefore, the Agency has revised the rule in 
response to this comment.

Onsite Inspectors (Sec.  4279.256(b))

    Comment: One commenter recommends that, instead of requiring 
lenders to provide an onsite project inspector, the borrower provide an 
onsite inspector, paid for if necessary from the loan proceeds with 
verification that such a person is in place by the lender.
    Response: The Agency disagrees with the commenter's recommendation. 
In order to ensure proper oversight, the inspector needs to be a 
``disinterested'' third party. Having the borrower provide the onsite 
inspector does not ensure that an appropriate third party will be used 
to conduct onsite inspections. Furthermore, the guarantee is affixed to 
the lender's loan and having the lender provide the onsite inspector is 
one way of managing project risk. Lastly, the Agency's relationship is 
with the lender and the requirement for the lender to provide an onsite 
inspector is one of the lender's servicing responsibilities. Therefore, 
the lender needs to be responsible for providing the onsite inspector.

Changes and Cost Overruns (Sec.  4279.256(c))

    Comment: One commenter states that the requirement that no 
subsequent loans for cost overruns will be made, found in Sec.  
4279.256(c), is overly strict. The Agency should be open to such 
requests, while obviously retaining the right to approve them or not. 
To simply say this will not be done may create loan servicing problems 
if promising projects do end up needing additional financing. The 
commenter believes that prudence dictates the Agency never say never on 
this.
    One commenter states that, in the event that construction cost 
increases or changes in the proposed project design are required for 
successful commercial operations, rather than not allowing any 
restructuring of the loan and guarantee, as long as a revised budget 
and financial plan meets the required criteria and would have qualified 
for the loan and guarantee as adjusted if it were a new application, 
such changes and restructuring should be allowed.
    Response: The Agency agrees with the commenters that the proposed 
rule was potentially too stringent. Therefore, the Agency has revised 
the rule so that the Agency may consider modifying the current 
guaranteed loan or a subsequent guaranteed loan after all other 
financing options have been exhausted by the lender and borrower.
    Comment: One commenter states that Change or Cost Overruns should 
be handled by the lender pursuant to the terms of traditional 
construction loan documents and restricted per the guarantee and other 
agreements between the lender and the Agency. The commenter states that 
all construction agreements should be standard AIA Fixed Cost 
contracts, and that the lender should be responsible for administration 
of draw requests. The Agency would, of course, have the option to not 
guarantee the loan if it does not believe that the construction 
documents provide adequate protection, and the documentation supporting 
the loan guarantee should address situations such as this.
    Response: The Agency does not agree that this suggestion needs to 
be provided for in the rule, but rather will consider such matters on a 
case-by-case basis and, where appropriate, add to the Conditional 
Commitment. In other words, while this approach may be useful in some 
cases, it does not need to be universally applied to all Biorefinery 
Assistance Guaranteed Loan Program loans. Therefore, the Agency has not 
revised the rule in response to this comment.

New Draw Certifications (Sec.  4279.256(d))

    Comment: One commenter questions why the lender is required to 
``certify'' the borrower is complying with the Davis-Bacon Act as this 
was not required in Section 9003 NOFA and is an added burden. This 
should be done by the Agency, not required of the lender.
    Response: The Agency disagrees with the commenter. While omitted 
from the NOFA, this requirement has been placed in each Conditional 
Commitment under the NOFA and is required by the authorizing 
legislation. Because our relationship is with the lender and not the 
borrower and the lender has access to the requisite documentation, the

[[Page 8447]]

Agency believes this requirement needs to be completed by the lender.

Surety (Sec.  4279.256(e))

    Comment: One commenter states that it may not be possible to 
achieve surety from the construction contractor given that no 
contractor will guarantee the performance of new technology unless they 
own it (generally not the case). However, it is standard practice that 
the contractor will guarantee that the work is performed according to 
specifications. It will generally be necessary to pay the contractor as 
work is completed and should be anticipated when the guarantee is in 
place during construction.
    Response: The Agency believes that the commenter is misinterpreting 
surety. The intent of surety for construction projects is to guarantee 
the completion of the project as designed for the intended purpose. 
Surety cannot guarantee performance or prevent design failure. To avoid 
such misinterpretation, the Agency has removed the definition of surety 
and will rely on the use of the term as it is commonly used by the 
industry.

Guarantee Applications--General (4279.260)

    Comment: One commenter agrees with the position that financing 
arrangements do not necessarily fit within prescribed application 
windows and that the applications should be submitted upon individual 
completion. However, the commenter believes there are some references 
in the proposal to ``application deadlines'' which could be confusing 
or misleading.
    Response: The intent of the program is to accept applications year 
round. The rule identifies two application deadlines. The applications 
received under each deadline will be competed against each other to 
determine funding priority. While the rule is clear, to the extent that 
confusion arises, the Agency will take other action to address the 
confusion such as supplementing its Web site.
    Comment: Several commenters suggest that the section 9003 program 
have an open year-round application process, similar in scope to the 
B&I guaranteed loan program. The application process is arduous and 
time consuming, and cannot be completed in 30 to 60 days. This will 
encourage applications year-round, and will also ensure that applicants 
will not have to wait a year or more to apply. It is extremely 
important to not hinder the growth of this industry at this time 
through the use of short windows and year-long waits to release 
appropriated funds for each fiscal year. The experience and ``on-the-
ground'' support of the Agency state offices should be used to 
administer the program to provide a greater level of service. An 
experienced regional staff should be appointed to assist the state 
offices in administering this program and work intra-state to develop 
regional solutions and approaches for advanced biofuels.
    Response: The Agency has an open application cycle, but competes 
applications twice per year. This competition is necessary in order to 
pick the best proposals. The Agency will assign adequate staff to 
review applications and administer this program.

Application Submittal (Sec.  4279.260(a))

    Comment: One commenter recommends that applications be submitted 
electronically and that paper copies not be required at all. According 
to the commenter, it is an anachronistic burden and environmentally 
unsound to require paper copies.
    Response: The Agency acknowledges the desirability of electronic 
applications versus paper applications. The proposed rule required 
paper copies because, at this time, the Agency is not able to accept 
electronic copies. However, the Agency is working on having a system to 
accept electronic applications, although when such a system will be in 
place is unknown. To accommodate the future acceptability of electronic 
applications, the Agency has revised the rule to remove reference to 
paper copies and insert reference to the use of the annual Federal 
Register notice to identify the applicable method of application 
submittal.

Application Deadline (Sec.  4279.260(b))

    Comment: One commenter states that the June 1 application deadline 
specified in Sec.  4279.260(b) is too specific. The commenter believes 
it should be left to the Federal Register process and Agency 
administrative decisions and processes to establish the NOFA date.
    Response: The Agency disagrees with the commenter. As discussed 
above, the Agency intends to accept applications year round, but plans 
to compete those applications on hand as of the two specific dates 
stated in the rule (May 1 and November 1). Thus, May 1 would be 
considered an ``application deadline'' only to the extent that 
applications received after May 1 will be included in the evaluation 
cycle that begins on the following November 1 rather than being 
evaluated when received. The intent of establishing a specific 
application deadline in the rule is to provide a default date, which 
provides the public with a consistent and known date as to when to 
submit applications. Because unforeseen events may cause a different 
application date to be preferable, the rule allows the Agency to adjust 
the application date through the publication of a Federal Register 
notice.
    Comment: One commenter recommends that, rather than requiring a 
deadline for consideration within a given fiscal year, the Agency 
commit to a short time response, such as two weeks from the date of 
submittal. It should not matter when the application was submitted as 
long as it is submitted within the fiscal year to qualify for that 
year's allocation of funds as long as there are funds remaining in the 
budget. It would be acceptable to have a response to an application 
delivered in the next fiscal year when such application was delivered 
near the end of the prior fiscal year. Also, rather than having two 
competitions, applications should be considered and awarded as they are 
received. Because the Agency has discretionary authority to expand the 
funding for the program beyond the statutory minimum, in such a case 
when the Agency were to receive many qualified projects throughout the 
year, funding could be expanded to match the qualified projects. Hence, 
there is no need for a two phase competition. The commenter further 
states that, unlike with the NOFAs there should be no specific windows. 
The program should be available at any time throughout the fiscal year 
until no more funds are available, with applications accepted, 
evaluated and loan guarantees authorized on a rolling basis. The Agency 
needs to commit to respond, and preferably complete its review within 
two (2) weeks of receiving an application.
    Response: The Agency does not have the authority to expand funding 
for the program beyond the amount appropriated by Congress. Because the 
amount of funding is limited, the Agency may not be able to award funds 
to all eligible projects. Therefore, applications need to be competed 
in order to award the available funds to the highest scoring projects. 
If the Agency were to award funds to projects on the basis of when 
applications are received, the best projects may not be funded. Thus, 
the Agency cannot make awards throughout the year as applications are 
received. If a lender wishes to know the status of an application, the 
lender can contact the Agency at any time for updates on application 
review.
    With regard to the commenter's suggestion that the Agency commit to 
responding to and completing its review within 2 weeks of receiving an

[[Page 8448]]

application, the Agency cannot make such a commitment because of the 
time needed to conduct the technical review (which is performed by 
parties outside of the Agency) and such uncertainties as the number of 
applications received at any one time and the availability of Agency 
resources.

Feasibility Study (Sec.  4279.261(f))

    Comment: Several commenters state that the feasibility study should 
be modified to include or re-arrange its elements as follows:

Feasibility Study

    Economic Feasibility--remove the requirement to document that all 
woody biomass feedstock cannot be used as a higher value wood-based 
product. Add a section on ``feedstock risks.''
    Market Feasibility--redefine the risk section to specific market 
risks, including competitive threats and advantages.
    Technical Feasibility--Delete ``any constraints or limitations in 
the financial projections'' and move to the Financial Feasibility 
section. Add a category on ``design-related risks.'' Add a section on 
permits required and other environmental or ecological constraints.
    Financial Feasibility--add a section on ``sources and uses of 
funds'' and ``matching funds.'' Add a section on ``borrower's business 
strategy.'' Redefine the risk section to include only ``baseline 
production outputs, borrower financing plan, tax issues, government 
regulations, and borrower as a company.''
    Management Feasibility--further define the three levels of 
management: Ownership, management, and provide an organizational chart 
showing all staff required to manage and operate the biorefinery with a 
spreadsheet showing annual wage rates for each employee category. 
Change the management risk category to include: Changes in management, 
strengths and weaknesses of the management team, changes in ownership 
of the company, conflicts of interest.
    Business Plan--Eliminate the Business Plan requirement as all 
elements are present in the Feasibility Study.
    Economic Analysis--This criterion should be eliminated, and all 
elements moved to the financial feasibility section of the feasibility 
study.
    Response: The Agency agrees with some of the commenters' 
suggestions and disagrees with others as follows:
    1. Economic Feasibility (Section B of Table 1). With regard to the 
recommendation to remove the requirement to document that all woody 
biomass feedstock cannot be used as a higher value wood-based product, 
the Agency disagrees, but instead has revised the rule to clarify that 
the ``higher value product'' only applies to woody biomass feedstock 
from National Forest system lands or public lands.
    With regard to the recommendation to add a section on ``feedstock 
risks,'' the Agency agrees that these risks need to be addressed and 
has revised the feasibility study accordingly.
    2. Market Feasibility (Section C of Table 1). With regard to the 
recommendation to redefine the risk section to specific market risks, 
including competitive threats and advantages, the Agency agrees with 
the comment and has revised the feasibility study accordingly.
    3. Technical Feasibility (Section D of Table 1). With regard to the 
recommendation to delete ``any constraints or limitations in the 
financial projections'' from this section and move it to the Financial 
Feasibility section, the Agency agrees with the comment and has revised 
technical feasibility accordingly. The Agency notes that the remainder 
of this element (and any other facility or design-related factors that 
might affect the success of the enterprise) has been removed, but its 
intent is covered by the addition of design-related risks as discussed 
in the following paragraph.
    With regard to the recommendation to add a category on ``design-
related risks,'' the Agency agrees with the comment. The Agency has 
revised technical feasibility by adding ``risks related to design-
related factors that may affect project success'' and moving the 
remaining segment of the fourth section under Section (D) of Table 1 
(``Any constraints or limitations in the financial projections'') to 
the Financial Feasibility section.
    With regard to the recommendation to add a section on permits 
required and other environmental or ecological constraints, the Agency 
does not agree with commenter. The rule requires the lender to submit 
Exhibit H of 7 CFR part 1940, subpart G, to address environmental 
issues and permits. Section B of the feasibility study requires the 
identification of project impacts on the environment.
    4. Financial Feasibility (Section E of Table 1). With regard to the 
recommendation to add a section on ``sources and uses of funds'' and 
``matching funds,'' the Agency agrees with the suggestions to add 
reference to the ``uses of project capital'' and has revised the rule 
accordingly. However, the Agency disagrees with the suggestion to add a 
section on matching funds because matching funds are already addressed 
in Section E of Table 1.
    With regard to the recommendation to add a section on ``borrower's 
business strategy,'' the Agency disagrees because the borrower's 
business strategy is sufficiently covered as part of the borrower's 
business plan.
    With regard to the recommendation to redefine the risk section to 
include only ``baseline production outputs, borrower financing plan, 
tax issues, government regulations, and borrower as a company,'' the 
Agency disagrees with the commenter. The Agency requires the risk 
categories identified to assist with the evaluation of the feasibility 
of the project and technology.
    5. Management Feasibility (Section F of Table 1). With regard to 
the recommendation to further define the three levels of management, 
the Agency is satisfied that sufficient disclosure of management and 
ownership structures is provided for in the feasibility study and the 
lender's written credit analysis.
    With regard to the recommendation to change the management risk 
category to include changes in management, strengths and weaknesses of 
the management team, changes in ownership of the company, and conflicts 
of interest, the Agency will add management's strengths and weaknesses 
but disagrees with commenter's other suggestions. The Agency notes that 
``Conflicts of Interest'' was already included in the proposed rule and 
remains in this interim final rule.
    6. Business Plan (proposed Sec.  4279.261(g)). With regard to the 
recommendation to eliminate the Business Plan requirement as all 
elements are present in the Feasibility Study, the Agency disagrees 
with the commenter's suggestion. The business plan is prepared by the 
borrower, while the feasibility study is prepared by a third-party 
expert and is an evaluation of the project and the company. The Agency 
notes that the rule allows a business plan to omit any information that 
is included in the feasibility study.
    7. Economic Analysis (proposed Sec.  4279.261(i)). With regard to 
the recommendation that this section be eliminated and all elements 
moved to the financial feasibility section of the feasibility study, 
the Agency agrees with the commenter and has revised the rule to 
incorporate the economic analysis into the feasibility study.
    Comment: One commenter states that the Agency proposes to require 
that applicants submit documentation in their feasibility study that 
all woody biomass feedstock proposed to be utilized could not be used 
as a higher

[[Page 8449]]

value wood-based product. The commenter states that a similar 
restriction in the BCAP proposal was inconsistent with the Farm Bill 
definition of ``renewable biomass.'' Under Section 9001 of the Farm 
Bill, an advanced biofuel need only be derived from ``renewable biomass 
other than corn kernel starch.'' Thus, a fuel is an advanced biofuel so 
long as it is produced from materials meeting the definition of 
renewable biomass and it falls within one of the seven types of listed 
advanced biofuel categories. Looking to the definition of renewable 
biomass in the Farm Bill, the only restriction relating to higher-value 
products can be found in Section 9001(12)(A)(ii), relating to Federal 
land. There, Congress included the higher-value product limitation with 
regard to ``materials, pre-commercial thinnings, or invasive species 
from National Forest System land and public lands * * *'' Section 
9001(12)(B), governing the definition of renewable biomass as it 
relates to biomass derived from non-Federal land, contains no such 
value-added restriction. Indeed, this section refers to ``any organic 
matter that is available on a renewable or recurring basis from non-
Federal land.'' However, the definition contains no such restriction as 
it relates to non-Federal land, nor does it leave room for statutory 
interpretation.
    The commenter does not believe that the Agency has the statutory 
authority to require that applicants document that their woody biomass 
could not have been used in a higher-value product. The Farm Bill 
definition makes clear that such a restriction could only apply to 
applicants seeking payment for advanced biofuels derived from woody 
biomass sourced from Federal land. The commenter urges the Agency not 
to finalize a provision so clearly contrary to express statutory 
language.
    Statutory authority aside, if the Agency chooses to finalize such a 
scheme, the commenter suggests that it not categorically exclude 
biomass that could be used in higher-value products. The commenter 
believes that there is some woody biomass that, while it could be used 
as a higher-value wood based product, will not be for numerous reasons, 
including market access. The rule should allow for loans for advanced 
biofuel facilities using renewable biomass that could be used as inputs 
for higher-value products, but that have not been previously utilized 
on a facility-specific or regional basis.
    Response: The Agency agrees with commenter's interpretation of the 
statute with regard to higher-value products from wood sources from 
Federal lands. The Agency has clarified the rule to reflect that the 
``higher-value product'' documentation requirement only applies to wood 
sourced from National Forest System lands or other public lands, as 
specified in the authorizing statute.

Technical Assessment (Sec.  4279.261(h))

    Comment: One commenter suggests that the Agency drop its technology 
review from the application process. The commenter states that, given 
that the Agency is open to all technologies, an in-depth technical 
review will have already been completed by the investor group and so 
the Agency will not need to do so.
    Response: The Agency disagrees with commenter's suggestion. The 
technology review allows the Agency to determine the commercial 
viability and technical merit of the proposed project and provides 
verification that the project has reached semi-work scale. Therefore, 
the Agency has not revised the rule in response to this comment.

Lender Certifications (Sec.  4279.261(k))

    Comment: One commenter states that the proposed rule requires 
lenders to ``certify'' that the project is able to demonstrate 
technical merit but then states that the Agency will determine the 
project's technical merit. Lenders should not be required to determine 
the technical merit of these projects particularly since these projects 
may or will incorporate first-of-a-kind technology--technology never 
before utilized. Such a requirement is unnecessary given that the 
Agency will actually make this determination. Lenders should only be 
required to verify that the borrower has provided a technology 
assessment as part of the application.
    Response: The purpose of the certification required under this 
paragraph is neither to replace nor to duplicate the Agency's 
determination of technical merit. The purpose of this certification is 
to ensure that the lender performs its due diligence. To make this 
clear, the Agency has recast the second sentence of this paragraph such 
that the lender will now certify that, as a result of its due 
diligence, the lender concludes that the project has technical merit.

Scoring Applications (Sec.  4279.265(d))

General
    A number of commenters characterized the scoring criteria as 
unrealistic, presenting obstacles or being contrary to the program's 
goals, etc. Some of these commenters illustrated their concerns by 
discussing specific scoring criteria. In such instances, such 
discussions are included in the specific scoring criteria. Commenters 
also suggested numerous additions to the scoring criteria. The general 
comments and proposed additions are addressed first, followed by 
comments associated with the specific scoring criteria.
    Comment: Several commenters state that the scoring criteria are 
unrealistic in several areas and must be reconstructed to recognize the 
economic, environmental, technical, managerial, and financial strength 
of the project as the first qualifying criteria. The points in the 
current proposed rule do not correlate to the risks and rewards 
involved in the development and successful implementation of a long-
term, sustainable project. The scoring criteria should be modified to 
properly define the risk and reward of a project, including a review of 
the technology, the financial strength of the project including equity 
contribution, the strength of the management team, and then include the 
required criteria with a point value of no more than 30 percent of the 
total score. The funds must go to the projects that have the best 
chance of sustainability and implementation in the long run. This will 
properly provide a springboard for the industry for financing and long-
term implementation and success.
    Response: The statute identifies the criteria the Secretary will 
consider when scoring a project and the Agency incorporated the 
criteria into the rule. In addition, in consideration of language 
contained in the Managers Report, an additional criterion was 
incorporated to give preference to projects that are first-of-a-kind. 
As is true for all of the comments to this rule regarding how many 
points the Agency assigned to the various scoring criteria, the points 
for each of these criteria were assigned in a way that the Agency has 
determined best meets the goal of supporting the advanced biofuel 
industry and Congressional intent while minimizing the risk to public 
funds.
    Comment: One commenter states that one obstacle that is difficult 
to overcome is inherent ``institutional biases'' that lead to specific 
emphases in point scoring. For example, with respect to Financial 
Participation, the text states: ``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).

[[Page 8450]]

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.''
    The commenter disagrees that a higher equity percentage indicates a 
higher and better commitment to the project. Given that the equity 
investors in such projects do not invest with the expectation to lose 
their investment, since these are not venture investors, a $100 million 
project that requires $20 million in cash equity for example, is a 
major commitment. A $30 million equity participation does not indicate 
any more commitment. However, it does substantially increase the IRR 
requirement from the cash investor and that can provide undue financial 
burden on the project and make it financially unfundable for no real 
benefit. A higher percentage for a much smaller project could represent 
a more sincere commitment, but that is not true in this case.
    Response: Cash equity is the metric used to show the commitment 
level. The 20 percent requirement is the minimum level to be eligible 
and is required by statute. The points awarded are intended to reflect 
those who contribute more to the project, and not to reflect whether 
one borrower is more committed than another.
    Comment: One commenter refers to the proposed increase in the 
scoring for novel feedstock as another obstacle presented by the 
scoring criteria. According to the commenter, the requirement in Sec.  
4279.265(d)(3) is in direct opposition to the needs of financing a pre-
commercial technology. Despite the Agency's extensive experience with 
loan guarantee programs, it has yet to administer a program for such 
large projects or for pre-commercial technologies. Although some of the 
prior regulations and approaches can conveniently be adopted from B&I 
and REAP, the section 9003 program is fundamentally different from 
these commercially proven technology programs. There appears to be a 
lack of awareness (possibly based on a lack of experience) within the 
Agency to recognize the roadblocks that some of the proposed rules and 
scoring criteria create for good projects where pre-commercial 
technology is being deployed. The fact that we are engaging in pre-
commercial technologies is a game changer when it comes to what 
criteria matter and the support that such projects need.
    Response: The Agency recognizes the concern raised by the 
commenter. However, the statute identifies this criterion. Therefore, 
the Agency must include this criterion. The Agency notes that the 
scoring criteria give preference; they do not determine eligibility.
    Comment: One commenter states that, to maximize the rural economic 
benefits of the Section 9003 Guaranteed Loan Program in furtherance of 
the Rural Development's mission, a project's rural economic benefits be 
added as an evaluation criterion to proposed Sec.  4279.265(d). Rural 
Development's mission to enhance the quality of life and economic 
foundation of rural communities would be furthered by a more 
comprehensive evaluation of a project's potential rural economic 
benefits. A project's rural economic impact is not only determined by 
the location of the biorefinery, but by the origin of the feedstock as 
well. Awarding points to projects based on their level of economic 
impact to a rural community is consistent with the Agency's mission and 
allows maximum opportunity for the commercialization of domestic 
advanced biofuels in the U.S. Dedicated energy crops, such as 
carnelian, are grown in rural areas. Thus, the commenter encourages the 
Agency to consider a project's location in a rural area or its 
feedstock's rural origins as plus factors in the evaluation criteria. 
Many non-rural advanced biofuel refining projects can yield substantial 
economic benefits for rural America, in addition to increasing energy 
independence, decreasing greenhouse gas emissions, and diversifying 
agricultural markets. Thus, a more inclusive approach would maximize 
the impact of the section 9003 program.
    Response: The Agency agrees that potential rural economic 
development is an important metric for evaluating applications. 
Consistent with one of the commenter's suggestions, the Agency has 
added a rural location requirement for the project to this criterion to 
accompany potential rural jobs to measure this metric, as found in 
Sec.  4279.265(d)(8). To include other aspects suggested by the 
commenter would make the scoring overly complicated and burdensome with 
questionable benefit. Therefore, except for adding the rural location 
requirement for the project, the Agency has not otherwise revised the 
rule in response to this comment.
    Comment: One commenter encourages the Agency to revise the 
stipulation that ``specific feedstock should not receive preference 
over other feedstock when evaluating applications.'' The commenter 
believes that biorefinery feedstock should be evaluated according to a 
comprehensive life-cycle analysis that accounts for all greenhouse gas 
emissions, including those associated with indirect land use changes. 
Additionally, the commenter believes that extra points should be given 
for projects that provide clean, potable water for human use and/or 
irrigation.
    Response: The scoring criterion in Sec.  4279.265(d)(6) addresses 
the positive impact of the project on resource conservation, public 
health, and the environment. This can include each of the elements 
identified by the commenter, including life-cycle analysis, water 
impacts, and irrigation. The Agency encourages applicants to submit 
data, analyses, etc. to support this criterion, including any life-
cycle analyses. As noted in previous responses, this scoring criterion 
now contains a deduction when the feedstock can be used for human or 
animal consumption. This provision further advances the positive impact 
under this scoring criterion.
Established Market Criterion
    Comment: One commenter agrees that it is appropriate to demonstrate 
that there is a market for the product from the facility, but believes 
that the Agency should apply this requirement flexibly in view of two 
facts. First, unlike electricity which is typically contracted over a 
multi-year time horizon, liquid fuels are traded almost entirely 
through short-term spot markets. Second, it was due in part to 
recognition of this basic structural feature of fuels markets that 
Congress enacted, in 2005, and expanded, in 2007, an RFS that codifies 
a purchase mandate in Federal law. The RFS establishes targeted levels 
for purchases of cellulosic biofuel, as well as default pricing 
mechanisms for credits when available quantities of that fuel are 
insufficient to meet the needs of an obligated party under the law. The 
existence of this mandate provides strong assurance that a market will 
exist for cellulosic biofuels production, at a price up to the cost 
that an obligated party under the RFS would incur to purchase 
alternative supplies plus credits to fulfill its obligation.
    To illustrate potential issues with the rule as proposed, the 
biofuels industry has experienced significant road blocks when 
navigating the Department of Energy loan guarantee program application 
process in this regard. Therefore, the commenter is asking for the 
following inclusion in The

[[Page 8451]]

Innovative Technology Loan Guarantee Program (Title XVII of EPAct):
    ``Loan guarantee applications for emerging technologies, such as 
advanced biofuels, should not be evaluated against more mature 
technologies, such as wind or solar. The liquid fuels marketplace does 
not operate within a framework that lends itself to long-term, fixed-
price forward contracting mechanisms; therefore, DOE should not require 
these contracts as evidence of `reasonable prospect of repayment' for 
biofuels projects. The Committee recommends that this program also be 
expanded to include eligibility for renewable chemicals and biobased 
products in addition to biofuels.''
    Another commenter encourages the Agency to consider the 
appropriateness of off-take agreements in the fuels market. The 
commenter states that their experience has indicated that such 
requirements are much more challenging for renewable fuels than with 
renewable electricity, which has been financed largely through long-
term power purchase agreements. The commenter urges the Agency to 
broaden the scope of what it considers a demonstration of an 
established market for a fuel. Off-take agreements are clearly one way 
that such a market can be established. The commenter believes that 
EPA's large RFS2 mandates represent ``legislated demand'' that should 
sufficiently demonstrate that a market exists. RFS2 relies upon a 
fungible, liquid market for renewable fuels that is fundamentally 
inconsistent with a requirement that obligated parties actually 
purchase the fuel and take delivery. Rather, obligated parties 
demonstrate compliance through submission of ``RIN'' credits, which 
renewable fuel producers generate when they produce qualifying fuels. 
Demand for these RIN credits functions in the same way as an off-take 
agreement, as both serve as a market outlet for the fuel. Given 
forecasts on meeting RFS2 targets through 2022, it does not appear that 
advanced biofuel production will exceed mandates. Thus, every gallon of 
advanced biofuel produced up to the mandates will have a guaranteed 
market outlet. Even absent the RFS2 (as well as low carbon fuel 
standards in California and the northeastern states), the Agency should 
consider drop-in fungible fuels to have an established market 
(equivalent to a dedicated off-take agreement) at no less than the 
value of the fossil-fuel which they replace. Indeed, since synthetic 
hydrocarbons like BTL offer superior performance characteristics, 
including lower conventional pollutant emissions than conventional 
fuels, a market premium would be justified. While non-fungible fuels 
such as ethanol that can only be blended up to certain levels with 
conventional fuels have a demand ceiling (absent dedicated 
infrastructure, such as that needed for E-85), fungible fuels such as 
BTL that are fully compatible with existing fuels and infrastructure 
will have access to existing fossil fuel markets. While the commenter 
recognizes that future fossil fuel prices alone may not sufficiently 
demonstrate the financial feasibility of a project, the commenter urges 
the Agency to recognize this market ``floor'' in its scoring criteria 
for demonstrating an established market for an advanced biofuel 
project.
    Response: With regard to the commenter's concern about spot market, 
the Agency points out that the rule does not specify a timeframe 
associated with the commitments. Therefore, this concern should not be 
an issue.
    With regard to the comments made concerning the Renewable Fuel 
Standard program, the Agency acknowledges that the Renewable Fuel 
Standard program may establish a commodity market for renewable fuel 
standard biofuels as a whole. However, for the purposes of the 
Biorefinery Assistance Guaranteed Loan Program, the Agency is looking 
at whether the borrower has established a market for its biofuel and 
byproducts; that is, the Agency is looking for the establishment of an 
individual market for the borrower's biofuel and byproducts. The 
commodity market created by the Renewable Fuel Standard program does 
not ensure there will be revenue generated for the specific project in 
the application. On the other hand, the Agency seeks to further the 
renewable fuel provisions of the Section 9003 program by, as has been 
noted previously, requiring the advanced biofuel to meet an applicable 
renewable fuel standard as identified by the EPA in order to receive 
points under this scoring criterion.
    The Agency notes that it does not have the authority to modify the 
Department of Energy's Innovative Technology Loan Guarantee Program as 
requested by one commenter.
    Comment: One commenter believes that this is a misinterpretation in 
the proposed rule of the intent of Congress in the 2008 Farm Bill. To 
``establish markets'' for the advanced biofuel and byproducts would 
only apply for a new type of advanced biofuel. Ethanol and biodiesel 
are traded as commodities and already have an ``established market.'' 
The same is true of distiller's grain from current ethanol 
biorefineries. The commenter proposes that newer types of alcohol, such 
as butanol or propanol, meet the requirement of establishing a market 
with a signed off-take agreement. The same is true of the biobased 
byproducts from new processes. Due to changing farm economics as well 
as changes in farm policy, a feedstock agreement of more than 3 years 
is very difficult to obtain. The commenter proposes the following 
criterion with a maximum of 5 points:
    1. If the application has a commitment for at least 40 percent of 
the biofuel produced from the project; a commitment for at least 40 
percent of the biobased byproduct produced from the project; and a 
commitment for at least 60 percent of the feedstock to be used in the 
project, then the application will be awarded 5 points.
    2. All commitments must be for at least 3 years.
    3. Notwithstanding other qualifications of this criterion, ethanol, 
biodiesel, and distiller's grains shall be exempt from any purchase 
commitment.
    Response: With regard to the recommendation for how points will be 
awarded, the Agency is revising the rule to require a 50 percent 
commitment for each and, as noted previously, requiring the advanced 
biofuel to meet an applicable renewable fuel standard as identified by 
the EPA in order to receive points under this scoring criterion. The 
Agency is also increasing the points for this scoring criterion from 5 
to 10.
    The Agency disagrees with the recommendation for including a 
requirement that all commitments must be for at least three years, 
because it could discourage the introduction of advanced biofuels 
produced from new feedstock.
    As noted in the previous response, the borrower needs to 
demonstrate that the borrower has established a market for the 
borrower's advanced biofuel and byproducts produced. Furthermore, the 
selection criteria in the statute refer to ``the advanced biofuel and 
the byproducts produced'' without distinguishing between new and 
established biofuel. Therefore, the Agency disagrees with the 
commenter's recommendation for providing an exemption from the purchase 
commitments.
    Comment: One commenter states that requiring feedstock supply 
commitments in demonstrating establishment of a market favors existing 
feedstock markets and, thus, does not encourage new solutions/feedstock 
usage/technologies.
    Response: All applicants must establish a market for the advanced 
biofuel and byproducts produced per

[[Page 8452]]

the statute. While the Agency recognizes that it may be easier for a 
borrower to obtain feedstock supply commitments in existing feedstock 
markets, the Agency has reduced the requirement from 60 percent to 50 
percent. Further, the Agency is not requiring a time commitment for 
these commitments. Lastly, the scoring criteria at Sec.  4279.265(d)(3) 
and (d)(11) are specifically designed to encourage new feedstock usage 
and technologies.
    Comment: One commenter recommends eliminating this scoring 
criterion for supply and off-take agreements. The commenter states that 
liquid fuels are a very fungible product and the industry practice is 
to not have long term off-take agreements.
    Response: As noted in the previous response, all applicants must 
establish a market for the advanced biofuel and byproducts produced per 
the statute. The Agency is satisfied that requiring demonstration of 
such agreements is reasonable. Further, the Agency is not requiring 
borrowers to demonstrate long-term off-take agreements.
    Comment: One commenter states that the proposed scoring system and 
the manner in which points are awarded in a number of categories seems 
to contradict the purposes of the program. As a result, there is a 
significant likelihood that the projects most likely to succeed (and 
the best deal for the taxpaying public) will be outscored by niche 
projects that will have limited impact on rural development or of 
filling advanced biofuel voids. One commenter disagrees with awarding 
zero points if 60 percent or less on feedstock commitments or finished 
product marketing agreements. The commenter explains that a commercial 
scale biorefinery is going to take two years to construct and require 
significant volumes of feedstock. It is unrealistic to expect a company 
to be able to contract over two years in advance for what could be 
millions of dollars of feedstock. Forward pricing would be so 
speculative and price risk would make a supply contracts unaffordable. 
Points will only go to small producers of niche products with feedstock 
sources that have no scalable impact on the rural community. An 
alternative would be to score based on Ag Census statistics on the 
agricultural capacity to grow the feedstock within a specified radius 
of the project.
    Response: The Agency disagrees that this scoring criterion will 
provide a preference to smaller producers. First, not all projects 
require a multi-year construction period. Second, even for projects 
that require a multi-year construction period, it is the Agency's 
experience that borrowers can reasonably obtain commitments in advance. 
Further, the Agency notes that it has reduced the required percentage 
of these commitments from 60 to 50 percent.
Presence of Other Biorefineries Criterion
    Comment: One commenter believes this criterion should be changed to 
10 points maximum. The commenter also suggests that the language be 
changed, as follows, to clarify that it is based on the exclusivity of 
a biorefinery using a particular feedstock:
    1. If the area that will supply the feedstock to the proposed 
biorefinery does not have any other advanced biofuel biorefineries 
using the same or similar feedstock, award 10 points.
    2. If there are other advanced biofuel biorefineries using the same 
or similar feedstock located within the area that will supply the 
feedstock to the proposed biorefinery, award 0 points.
    Response: The Agency is satisfied that the weight provided for this 
criterion is reasonable. With regard to adding to the scoring criterion 
``using the same or similar feedstock,'' the Agency is clarifying the 
language to read ``any other similar advanced biofuel biorefineries.'' 
The similarity is intended to refer to the facility and not to the 
feedstock.

Feedstock Not Previously Used Criterion

    Comment: One commenter states that financiers seek to reduce risk 
as much as possible and, in general, wherever possible, the scoring 
criteria to qualify for the program should be as flexible as possible 
so as to allow proposed projects to reduce all non-technology risk as 
much as possible. For example, the scoring criterion that awards more 
points for ``novel feedstock'' is in direct opposition to what is 
required to attract investors, both equity and debt. This might be a 
reasonable hurdle for an alternative program that seeks to help finance 
existing and commercially established technologies. For first-of-a-kind 
projects, requiring novelty in feedstock supply will likely render most 
proposed projects unfinancable because lenders will not take that type 
of risk even when the technology is proven. Despite the value of the 
loan guarantee, such a guarantee is insufficient in its own right to be 
able to mitigate sufficient risk for lender, especially given the 
requirement that the lender put itself at significant risk by holding 
10 percent of the unguaranteed portion. The loan guarantee will only 
help those projects that have reduced risk to the greatest degree 
possible other than the technology risk.
    Response: As stated previously in response to a similar comment, 
the Agency recognizes the concern raised by the commenter. However, the 
statute identifies this criterion. The Agency notes that the scoring 
criteria give preference; they do not determine eligibility.
    Comment: One commenter believes that the proposed rule weights this 
criterion too heavily. The intent of the program is to increase the 
production of advanced biofuels in rural America, which can be carried 
out by not limiting the awarding of such a large number of points to 
the first biorefinery to use a particular feedstock. Many groups want 
to be the ``second'' biorefinery to learn from the mistakes of the 
``first.'' The proposed rule should not carry such a hefty penalty for 
not being first. The commenter proposes that this criterion be a 
maximum of 5 points.
    Several commenters state that the points awarded to this criterion 
should be changed or given 3 to 5 points. Different technologies that 
utilize the same biomass should not be excluded because another 
applicant used it first.
    Another commenter recommends revising the language to include some 
threshold level instead of simply a ``first mover'' requirement. The 
intent is to establish multiple energy crops on a commercial scale and 
as written the first user of a new feedstock would qualify regardless 
of the size of their biorefinery and second user would not. The 
commenter states that, in addition, you want to encourage the further 
expansion on the feedstock, preferably with even new and better 
processes that make even more efficient use of the feedstock.
    Response: As noted in the response to the previous comment, because 
this criterion is identified in the statute, the Agency must include 
this criterion.
    Comment: One commenter agrees that no specific feedstock should be 
preferred. The commenter states that there should also be no additional 
points awarded for novelty. The commenter states that, under the NOFAs 
and propose rule, more scoring points are to be awarded for ``novel 
feedstock.'' The commenter states that if a prior project has been 
approved for the program with a type of feedstock, any future 
applications would not achieve maximum points because the proposed 
feedstock would no longer be ``novel.'' The commenter believes this 
scoring criterion is antithetical to the main goals of the program, 
which is to assist commercially viable technologies to pass through the 
``valley of death'' in terms of financing and should be removed as a 
scoring criterion, and to the goals of the financiers and especially

[[Page 8453]]

the lenders and therefore the program. The most important criterion for 
lenders is the reliability of the availability of the feedstock and the 
reliability of the supplier(s). Lenders always look for a track record 
and performance history. Hence, any feedstock that can be procured to 
meet the needs of the project financiers should be rewarded equally. 
The commenter states that it is unwise to increase the number of points 
for this criterion given that doing so makes projects less financeable 
and more risky.
    Response: As noted in the previous response, the Agency must 
include this criterion, because it is identified in the statute.
    Comment: One commenter states that the proposed manner in which 
points are awarded in a number of categories seems to contradict the 
purposes of the program. The commenter states that, as a result, there 
is a significant likelihood that the projects most likely to succeed 
(and the best deal for the taxpaying public) will be outscored by niche 
projects that will have limited impact on rural development or of 
filling advanced biofuel voids. The commenter states that awarding zero 
points for using a feedstock previously used in commercial production 
places the lowest risk projects at the biggest disadvantage. The 
commenter recommends that the Agency remain feedstock neutral and score 
projects based on their outcomes (rural revitalization), not inputs 
(type of feedstock).
    Response: Except to the extent the scoring criteria required by the 
statute result in favoring one feedstock over another, the Agency 
agrees with the commenter in that the Agency wants to encourage all 
advanced biofuels, except in very limited specific instances (e.g., 
feedstock that can be used for human or animal consumption). Beyond 
such instances, the Agency does not want to limit specific feedstock 
from participation in the program.
Working With Cooperatives and Producer Associations Criterion
    Comment: One commenter believes the calculations representing the 
60 percent level are incorrect and represent a 50 percent commitment.
    Response: The Agency agrees that the example was incorrect, and the 
example has been corrected.
    Comment: While one commenter agrees with the percentage 
requirements of the dollar value of feedstock being supplied by and 
byproducts being produced and sold to local producers to ensure strong 
local involvement, all other commenters express concern with this 
criterion, as follows:
    One commenter is concerned that the concept of providing points to 
projects that purchase 60 percent or more of their feedstock from 
producer associations or cooperatives and sell 60 percent or more of 
the products precludes benefits associated with purchasing feedstock 
from independent producers, farmers, etc., who stand to benefit 
significantly from such purchases. It is also not practical to require 
60 percent of revenue generated to be from selling products to producer 
associations or cooperatives. Typical biorefinery products are sold to 
obligated parties to generate maximum revenue. In general, this 
criterion may favor projects that do not bring as much benefit to local 
farmers and producers and may have higher risk through lower product 
revenue.
    One commenter suggests that this scoring criterion for supply and 
off-take agreements through cooperatives be eliminated. Because of the 
capital intensity of the first commercial projects, the entire 
entrepreneurial community needs to be engaged. Also, because these 
refineries utilize commodity inputs and are producing liquid fuel that 
fluctuates daily in price, it is very difficult to get supply and off-
take agreements at fixed prices.
    One commenter states that, given the challenges of achieving 
financing for projects, it is unwise to limit scoring to projects that 
are so heavily weighted to such transactions with producer associations 
and cooperatives. It is more important to assist the commercialization 
of new technologies and make the projects attractive to investors. In 
many cases, biomass feedstock is not yet available by way of producer 
associations and cooperatives. Hence, such a procurement plan would be 
considered unduly risky to financiers. At the same time, there is no 
guarantee that producer associations and cooperatives will provide the 
best outlet market for products to be sold. It is more important to 
make sure that these projects have the best possible chance of 
succeeding financially so that they can be financed. Having the most 
flexible sources of feedstock suppliers and off-take partners is the 
smartest way to get projects off the ground. The proposed constraints 
might make sense for a different program designed to support already 
commercialized technologies where the quid pro quo for Agency 
assistance would be to support such supply and off-take entities. The 
commenter states that it is unwise to try to achieve too many Agency 
goals in one program when the financing challenges are already very 
high.
    One commenter believes this criterion unfairly limits the sale of 
biofuels and biofuel byproducts. The commenter believes that both 
products should be able to be sold to individual farmers, community 
residents, small local businesses, power generation facilities, 
hospitals, educational institutions, municipalities, traditional oil 
refineries, etc. Selling the biofuel to a larger and more diversified 
number of users will help encourage faster acceptance and adoption of 
biofuels by the public and industry thereby increasing demand for even 
more locally produced biofuels.
    This same commenter also states that the provision for 60 percent 
of the dollar value of the feedstock will be supplied by producer 
associations and cooperatives unfairly and unnecessarily limits it to 
mainly producer associations and cooperatives. Small independent family 
farms and landowners should be able to equally provide feedstock to a 
biorefinery funded through this program. The number of small farms in 
the United States, particularly in the East, is growing. Being able to 
sell feedstock to the biorefinery would provide small farmers and 
landowners an additional source of potential income. It would also help 
keep land actively farmed in some communities.
    One commenter states that waste material, as a feedstock, does not 
lend itself to contracts with producer associations or cooperatives in 
the same way that biomass from crop or plant residues do. The commenter 
urges the Agency to adopt an alternative metric for feedstock that do 
not ordinarily have a nexus with producer associations and 
cooperatives, so that the investment in rural communities that the 
Agency seeks to encourage can come from the broadest possible sources.
    Response: The statute requires the Agency to consider whether the 
borrower is proposing to work with producer associations or 
cooperatives and, therefore, the Agency must include this as one of the 
scoring criteria. In recognition of the concerns raised by the 
commenters, the Agency has modified this criterion to award points if 
the project can document working with cooperatives and producer 
associations under one of the three criteria rather than all three. In 
addition, the Agency has revised this scoring criterion with a two-
tiered system that begins awarding points at a 30 percent threshold. 
The Agency considers the revised scoring methodology more workable, 
allowing greater participation by independent producers, farmers, etc.

[[Page 8454]]

    Comment: While working with producer associations and cooperatives 
is important, one commenter believes that the requirements in the 
proposed rule are not workable, especially regarding the purchase of 
the biofuel by the producer association or cooperative. The commenter 
proposes modification as follows with a maximum of 10 points that can 
be awarded:
    1. Award 2 points for an application with at least two support 
letters from producer associations or cooperatives.
    2. Award 4 points for an application with at least 20 percent of 
the dollar value of the feedstock purchased from a producer association 
or cooperative.
    3. Award 4 points for an application with at least 20 percent of 
the dollar value of the biobased byproducts sold to a producer 
association or cooperative.
    4. Notwithstanding other qualifications of this criterion, if the 
applicant is a producer association or cooperative, award 10 points.
    Response: The Agency disagrees with the specific recommendation. 
However, as stated in the response to the previous comment, the Agency 
has modified the criteria to award points if the project can document 
working with cooperative and producer associations under one of the 
three criteria rather than all three. In addition, the Agency has 
revised this scoring criterion with a two-tiered system that begins 
awarding points at a 30 percent threshold. The Agency considers the 
revised scoring methodology more workable.
    With regard to the request to award points based solely on the 
borrower being a producer association or cooperative, the Agency 
disagrees because the change in the rule to allow the borrower to meet 
one of the three criteria allows such a borrower to be awarded points 
under this criterion by working with another producer association or 
cooperative.
    With regard to the suggestion to increase the points awarded from 5 
to 10, the Agency considers the points associated with this criterion 
appropriate relative to the other scoring criteria and has not changed 
the points awarded under this criterion.
    Comment: Several commenters recommend giving a total score of 5 
points for projects that incorporate any contract or business 
relationship with producer associations and cooperatives, whether it 
consists of feedstock purchases or product and byproduct sales and 
should include any renewable electricity sold to a rural electric 
cooperative, or electricity purchased from a rural electric 
cooperative.
    Response: The Agency agrees with the commenters and has revised the 
rule to modify the scoring criteria to award points if any one of the 
three criteria are met. With regard to the suggestions that this 
criterion should include electricity sold to a rural electric 
cooperative, the Agency agrees. Sale of an advanced biofuel converted 
to electricity would qualify for points under Sec.  
4279.265(d)(4)(i)(B) or (d)(4)(ii)(B). The Agency does not agree with 
commenter to award points for purchasing electricity from an electric 
cooperative. The Agency has determined that to make the criteria 
meaningful, the Agency must limit the points awarded under this 
criterion such that not all applicants score under this criterion.
Financial Participation Criterion
    Comment: One commenter, while agreeing that this criterion should 
remain the most important, recommends increasing the maximum points to 
25 points. The commenter supports the exclusion of other direct Federal 
funding in calculating the borrower's cash equity participation. 
However, the commenter does not support the deduction of 10 points for 
the use of other Federal direct funding in the project. The commenter 
proposes the following:
    1. If the borrower's cash equity injection plus other resources 
results in a debt-to-tangible net worth ratio equal to or less than 
3.00 to 1, but greater than 2.75 to 1, award 11 points.
    2. If the borrower's cash equity injection plus other resources 
results in a debt-to-tangible net worth ratio equal to or less than 
2.75 to 1, but greater than 2.50 to 1, award 18 points.
    3. If the borrower's cash equity injection plus other resources 
results in a debt-to-tangible net worth ratio equal to or less than 
2.50 to 1, award 25 points.
    Response: With regard to the suggestion to increase points awarded 
under this criterion from 20 to 25, the Agency disagrees and has 
reduced the points from 20 to 15, which the Agency considers 
appropriate relative to the other scoring criteria and changes in 
points made to other criteria.
    With regard to the suggestion to delete the deduction of 10 points 
for the use of other Federal direct funding, the Agency wants to 
encourage participation from non-Federal sources and to diversify risk 
to Federal funds. Therefore, the Agency disagrees with the suggestion 
to delete this deduction.
    With regard to adding an additional level (i.e., 2.5 to 2.75 to 1) 
for awarding points, the Agency disagrees this level of distinction is 
necessary at this time because the scoring gradations are sufficient to 
distinguish the priority of the projects. As the program matures, the 
Agency may revise this criterion along the lines suggested by the 
commenter in order to provide further distinction between competing 
applications.
    Comment: One commenter states that projects that have exceptional 
economics and that can withstand higher percentages of debt should not 
be penalized by an arbitrary bias in favor of lower debt percentages. 
There should be no points specifically associated with this issue. 
Either a project meets the financing criteria or it does not. Not all 
projects can sustain low percent debt levels. Each project should be 
evaluated on its own merits, but percent of equity versus debt should 
not be a competitive decision making criterion. It is a false 
assumption that lower debt percent is generally preferable. Some 
products and markets may require high debt percent levels in order to 
be competitive and should not be penalized for it. Because the goal is 
to help projects prove commercial viability, projects that propose a 
financing plan that matches the most likely replicable future 
commercial financing scenario should be favored. It will be these 
projects that not only prove that the technology is commercially 
viable, but that the means of finance is also commercially viable.
    Response: The Agency disagrees with the commenter. The statute 
identifies financial participation of the borrower as a scoring 
criterion. Therefore, the Agency has retained this scoring criterion. 
The Agency notes that a loan guaranteed under the program may only 
finance 80 percent of the eligible project costs. In addition, the 
Agency's default and loss claim experience is that lower debt 
percentage is generally preferable because those projects tend to be 
more successful.
    Comment: One commenter states that this scoring criterion unfairly 
handicaps ``advanced technology biorefineries'' because they have the 
highest capital funding requirements. While understanding the need to 
get some biorefineries in production, the commenter believes the key is 
to advance future biorefinery technology so that we have a large scale 
commercial industry in the future.
    Response: As stated in the response to the previous comment, the 
statute requires the Agency to consider the level of financial 
participation of the borrower as part of scoring applications, and the 
Agency notes that a loan guaranteed under the program may only finance 
80 percent of the eligible project costs.

[[Page 8455]]

    Comment: Two commenters recommend, given the complexity and variety 
of negotiation and business structures between the lender and equity 
source, greater flexibility in the scoring requirement for projects 
that demonstrate more than 20 percent cash equity in order to foster 
increased use of the loan guarantee program.
    Response: To the extent that the commenter is requesting ``more 
levels'' for awarding points under this criterion, the Agency disagrees 
that additional levels of distinction are necessary at this time. As 
the program matures, the Agency may revise this criterion to provide 
further distinction between competing applications.
Positive Effect on Resource Conservation, Public Health, and the 
Environment Criterion
    Comment: One commenter suggests increasing the points awarded for 
this criterion from 5 to 10 and modifying how points are awarded as 
follows:
    1. If the production of advanced biofuels from the approval of the 
application would have a positive impact in one of the three impact 
areas (resource conservation, public health, and environment), award 2 
points.
    2. If the production of advanced biofuels from the approval of the 
application would have a positive impact in two of the three impact 
areas, award 6 points.
    3. If the production of advanced biofuels from the approval of the 
application would have a positive impact in all three of the impact 
areas, award 10 points.
    Response: The Agency has modified the rule to increase points and 
distribute the points as recommended, except that 3 points will be 
awarded if there is a positive impact on one of the three impact areas. 
However, the Agency disagrees with the proposed rewording to use 
``production of advanced biofuels from the approval of the 
application'' in place of ``process adoption'' because ``process 
adoption'' reflects the statutory language of the ``adoption of the 
process proposed in the application.''
    In addition, the Agency has added a provision to deduct 5 points if 
the feedstock for the proposed project can be used for human or animal 
consumption. The Agency is adding this provision because such 
feedstocks are considered to have significant enough negative impacts 
that the Agency seeks to discourage their use.
No Significant Negative Economic Impacts on Existing Facilities 
Criterion
    Comment: One commenter proposes no change to this criterion and 
would award a maximum 5 points.
    Response: The Agency disagrees, and, in the broader context of all 
the scoring criteria, has revised the points awarded under this 
criterion from 5 to 10, which the Agency has determined is reasonable 
relative to the other criterion.
    Comment: One commenter recommends that, as for local competition 
for feedstock, the local area for procurement be considered to be not 
more than 50 miles from the proposed project site. Given that biomass 
is generally uneconomical to transport more than 50 miles from source 
to site, using an area that is more than 50 miles will provide undue 
protection to some existing projects and limit the scope and 
possibility of many good projects. The commenter suggests that, 
alternatively, total available supply of feedstock within the 
competitive area be considered and whether there is sufficient 
availability for the incumbents as well as the proposed project. In 
general, by the time a project has been proposed to the Agency, this 
issue will have been reviewed to the satisfaction of the financers and 
will never be an issue. As a result, this review item can probably be 
dropped in its entirety, other than asking whether such an analysis was 
performed.
    Response: The statute requires the Agency to consider whether the 
proposed project will have any significant negative impacts on existing 
facilities. As such, the Agency must include this criterion in the 
rule. In order to determine if there will be any significant negative 
impacts, the Agency needs sufficient evidence to make an evaluation--
simply asking whether such an analysis was performed is insufficient. 
Therefore, the Agency has not revised the rule in response to this 
comment.
    However, the Agency has added a provision to this criterion that 
would result in no points being awarded if the feedstock to be used is 
wood pellets. While the Agency acknowledges the eligibility of wood 
pellets, the emphasis of this program is new and emerging technologies. 
The Agency further notes that wood pellets can be considered under 
other programs.
Potential for Rural Economic Development Criterion
    Comment: One commenter suggests increasing the points awarded for 
this criterion from 5 to 15 and modifying how points are awarded as 
follows:
    1. If a project's average wage is above the median household wage 
in the county and contiguous rural counties, award 15 points.
    2. If a project's average wage is equal to or below the median 
household wage in the county and contiguous rural counties, award 0 
points.
    Response: The Agency has reconsidered the points associated with 
this criterion and increased them from 5 to 10, which is appropriate 
relative to the other scoring criteria. Further, the Agency has added 
the provision that the project must be located in a rural area in order 
to be awarded points under this scoring criterion. As noted elsewhere 
in this preamble, this provision replaces the proposed eligibility 
requirement for a rural area location.
    With the respect to commenter's suggestion to use the median 
household wage in the county, the Agency agrees with the commenter that 
it is appropriate to look at the median household wage for the county, 
and not to include the median household wage for the state, because the 
county median household wage is more reflective of local economic 
conditions. The Agency has revised the rule accordingly.
    With respect to the commenter's suggestion to include contiguous 
rural counties, the Agency disagrees with the commenter because 
economic conditions in the contiguous counties may differ significantly 
from the project county. Thus, the Agency has not revised the rule with 
respect to this specific comment.
Local Ownership Criterion
    Comment: One commenter suggests decreasing the points awarded for 
this criterion from 15 to 10 and modifying how points are awarded as 
follows:
    1. If more than 20 but less than or equal to 50 percent of the 
biorefinery's owners are local owners, award 6 points.
    2. If more than 50 percent of the biorefinery's owners are local 
owners, award 10 points.
    3. A biorefinery that has as its majority owner a publicly traded 
entity would be awarded no points.
    Response: Considering the points proposed for this criterion 
relative to the other criteria, the Agency agrees with the 
recommendation to reduce the points for this criterion, but has reduced 
them from 15 to 5, in part because of the changes to the rural economic 
development potential scoring criterion, which now incorporates a rural 
area location requirement for the project to be awarded points and the 
increase in points under that criterion from 5 to 10. However, the 
Agency does not

[[Page 8456]]

specifically exclude majority ownership by publicly traded entities so 
long as the entity can demonstrate local ownership. The Agency has not 
made the recommended change regarding publicly traded owners because it 
does not want to discriminate against applicants with publicly traded 
owners. The Agency also notes that the calculations are based on 
ownership interest, not the number of owners.
    Comment: Four commenters suggest eliminating this scoring 
criterion. One commenter believes that local ownership will be 
difficult to obtain for these first-of-a-kind technologies that are 
perceived to be risky because of the general conservative nature of 
rural investors. This commenter believes that this criterion would be 
acceptable for projects based on commercially proven technology as a 
quid pro quo for Agency financial assistance, but is incompatible with 
early stage pre-commercial technology projects. It is unwise to 
increase the number of points for this criterion as a result.
    One commenter states that, in many cases, these projects require 
significant capital to complete and eliminating good projects because 
they do not have local ownership does not seem to support the 
objectives of creating a biorefinery industry.
    One commenter states that these projects need to be able to take 
full advantage of the entire range of investment opportunity. According 
to the commenter, this criterion places limitations on where supporting 
investment comes from. As a result, the commenter believes that there 
is a significant likelihood that projects most likely to succeed (and 
the best deal to the taxpaying public) will be outscored by niche 
projects that will have limited impact on rural development or of 
filling advanced biofuel voids. Such an outcome seems to contradict the 
purposes of the program.
    Response: The statute requires the Agency to consider local 
ownership. As such, the Agency must include this criterion in the rule. 
The Agency notes that the scoring criteria give preference; they do not 
determine eligibility. Thus, local ownership is not an eligibility 
criterion.
    With regard to reducing the number of points awarded for this 
criterion, the Agency has considered the points proposed for this 
criterion relative to the other criteria and, as discussed in the 
response to the previous comment, has reduced the points for this 
criterion.
Project Replication Criterion
    Comment: One commenter proposes no change in this criterion and 
would award a maximum of 5 points.
    Response: The Agency disagrees and has increased the points awarded 
under this criterion from 5 to 10. The Agency, in considering all of 
the scoring criterion and the relative points associated with each, has 
determined that the ability of a project to be replicated, especially 
first-of-a-kind technologies, is an important quality that the Agency 
wishes to encourage. Thus, the Agency has increased the points 
associated with this criterion.
Technology Not Currently Operating in Advanced Biofuel Market Criterion
    Comment: One commenter recommends eliminating this criterion 
because it is not explicitly stated in the 2008 Farm Bill. As stated 
earlier, the commenter believes that the second biorefinery is 
important as it learns from the first one. This criterion should not be 
needed to encourage the production of advanced biofuels.
    Response: The purpose of the program, as provided in the statute, 
is to assist in the development of new and emerging technologies for 
the development of advanced biofuels. This criterion gives priority to 
such technologies. Therefore, the Agency is retaining this criterion. 
However, in considering the points for this criterion relative to the 
other criterion, the Agency has reduced the points from 15 to 5.
    Comment: Several commenters state that points for a ``first-of-a-
kind technology'' should be changed to ``first commercial application 
of the applicant's technology.''
    Response: The Agency notes that the commenters are referring to 
language (``first-of-a-kind technology'') that was used in a notice of 
funding availability. The rule does not use that phrase, but instead 
refers to ``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 funding is available.'' This is very similar 
to the intent of the commenter's suggested ``first commercial 
application of the applicant's technology,'' and the Agency has 
retained the phrasing used in the proposed rule for the interim rule.
    Comment: Two commenters state that the points available for ``first 
of a kind technology'' category should be at least as high as 
``feedstock not previously used'' in order to continue to encourage 
innovation.
    Response: As proposed, both criteria had the same maximum number of 
points (15). However, the Agency is concerned that many new 
technologies are also likely to use new feedstocks and that the 
resulting 30 points was too high relative to the other criteria the 
Agency must consider for making awards under this program. Therefore, 
the Agency reduced the points under this criterion to 5, which would 
still provide 20 points for new technologies using new feedstocks.
    Comment: One commenter believes awarding points for unproven 
technologies is counter-intuitive to the program mission. The commenter 
states that technology risk is viewed by lenders and investors as one 
of the biggest barriers to participating in a project. Loans and loan 
guarantees should reflect preference towards projects with a declining 
risk and points should be awarded to projects that overcome technology 
risk.
    Response: The purpose of the program, as provided in the statute, 
is to assist in the development of new and emerging technologies for 
the development of advanced biofuels. This criterion gives priority to 
such technologies. Therefore, the Agency is retaining this criterion.
    Comment: One commenter believes this scoring criterion provides 
many opportunities for unclear scoring. For example, in the commenter's 
case, there may be other biomass gasification technologies being used, 
or under construction, for the production of advanced biofuels. 
However, all gasification systems are not alike and, in the commenter's 
case, the commenter is using oxygen vs. air plus a syngas yield 
enhancement stage using a catalytic autothermal reformer vs. a cleanup 
stage. This combination is considered a different and unique technology 
within the field. Hence, unless a proposed project and its technology 
are substantially identical to other technologies in deployment, at the 
very detailed level, the commenter suggests that any proposed project 
should be eligible and achieve the maximum possible points.
    Response: The Agency recognizes the concerns raised by the 
commenter. However, the Agency wants to continue to include this 
criterion in order to encourage the development of truly different and 
unique technologies. Thus, the Agency encourages the borrower to submit 
detailed information to establish that the technology is unique for the 
Agency to consider when scoring the project. As the program matures, 
the Agency may revisit this criterion to determine if any changes 
should be made.

[[Page 8457]]

Feedstock That Can Be Used for Human or Animal Consumption Criterion
    Comment: One commenter recommends eliminating this criterion 
because almost all feedstock ``can'' be used for human or animal 
consumption under some circumstance. Further, this criterion was not 
explicitly listed in the 2008 Farm Bill and will not further the intent 
of increasing advanced biofuel production in rural America.
    Response: While the Agency generally agrees with the commenter and 
has removed this as a separate scoring criterion from the rule, the 
Agency continues to believe that such feedstock should not be 
encouraged. To that end, the Agency, as noted elsewhere in this 
preamble, has incorporated a provision in the ``impacts on resource 
conservation, public health, and environment'' criterion a deduction of 
5 points if the feedstock can be used for human or animal consumption.
    Comment: One commenter believes that the Agency should remain 
feedstock neutral and award points based on the feedstock's ability to 
create new food and fuel opportunities. According to the commenter, 
just because feedstock could be used for food does not mean they would 
be if they otherwise would not have been grown.
    Response: As explained in the previous response, the Agency has 
removed this as a separate scoring criterion from the rule and 
incorporates it as a 5-point deduction under the ``impacts on resource 
conservation, public health, and environment'' criterion.
Alternatives
    Comment: One commenter recommends scoring feedstock based on their 
ability to be easily integrated into current agricultural practices.
    Response: The Agency agrees that it would be desirable to use 
feedstock that can be easily integrated into current agricultural 
practices. However, the Agency has determined that it would be 
difficult to measure such integration. Furthermore, the Agency does not 
want to include in the rule specific feedstock criteria, except in very 
limited specific instances (e.g., feedstock that can be used for human 
or animal consumption) that could limit the Agency's implementation of 
the program and is concerned about establishing a lengthy inflexible 
permanent list of specific scoring criteria not based directly on the 
authorizing legislation. Therefore, for these reasons, the Agency has 
not included the recommendation in the rule.
    Comment: One commenter recommends that scoring should be weighted 
towards avoidance of environmental consequences, ability to offer the 
agricultural industry a compelling reason to produce (value-add to what 
is already being done), and likelihood of leading to high capacity 
volumes. The commenter states that systems that integrate winter crops 
are an excellent example of this.
    Response: With regard to the avoidance of environmental 
consequences, the Agency is satisfied that this is sufficiently 
addressed in Sec.  4279.265(d)(6), especially with the addition of the 
provision to deduct points if the feedstock can be used for human or 
animal consumption.
    With regard to the ability to offer the agricultural industry a 
compelling reason to produce feedstock, the Agency has determined that 
it is not appropriate for this program to address this proposed 
criterion because USDA has other programs that address this area.
    With regard to including a criterion specific to the likelihood of 
leading to high capacity volumes, the Agency is satisfied that this is 
sufficiently addressed in Sec.  4279.265(d)(10). The ability of a 
project to be replicated will increase the likelihood that future 
facilities will be able to have high capacity volume.
    Comment: One commenter states that rural development is the 
ultimate goal, yet program rules, structure, and scoring system place 
considerable limits on the opportunities. The commenter recommends 
including the following metrics:
    1. Demand for new feedstock. To what extent will the project drive 
the development of new agricultural-related energy crops?
    2. Revenue opportunity. What are the volume needs and expected 
value of those crops in the vicinity of the project?
    3. Job creation. How many additional rural jobs will result from 
the project?
    4. Ease of adoption. How fungible are the new crops with respect to 
existing agricultural practices (use of existing equipment, storage and 
handling, planting and cultivating, nutrient and moisture requirements, 
etc.)?
    5. Sustainability. To what extent is the plant and feedstock system 
a longer term proposition? This includes carbon intensity, use of 
marginal lands/double crop systems/use of waste or residue, and market 
outlook for products.
    The commenter also states that the scoring system could be a 
program obstacle and recommends a more basic structure. The commenter 
states that DOE seems content with promoting the high risk emerging 
technology and niche application projects and that the Agency should 
measure projects based upon the mission of revitalization of the rural 
economy and promote projects with the greatest chance of success. The 
commenter recommends a scoring system based on the following:
    1. Ability to deploy unutilized crop options or create new energy 
crops that offer new opportunities for rural America.
    2. Ability to be scaled and replicated with limited technology 
risk.
    3. Ability to provide environmental benefits and avoid 
environmental and social consequences.
    4. Ability to be accepted into the farming community and be easily 
integrated into current agricultural practices.
    5. Ability for the finished products to be fungible in the current 
marketplace, while also adding significant volumes to the market.
    6. Ability to attract high ratios of equity or other investment.
    7. Ability to generate attractive returns and to offer compelling 
reasons for financing market participation.
    Response: The Agency agrees that potential rural economic 
development is an important metric for evaluating applications. In the 
rule, the Agency is using both the location of the project in a rural 
area and potential rural jobs to measure this metric, as found in Sec.  
4279.265(d)(8). To include the other aspects suggested by the commenter 
would make the scoring overly complicated and burdensome. The scoring 
criteria identified in the rule are either statutory and or in the 
Managers Report on the authorizing legislation. Statutory provisions 
cannot be eliminated. Therefore, the Agency has not revised the rule in 
response to this comment.
    Comment: One commenter agrees that there should be strong 
requirements and incentives for local ownership and local 
participation, but believes that rural job growth is not given adequate 
weight in the proposed scoring. The commenter recommends creating a 
scoring criterion that would award 10 points if a certain level of new 
job creation is projected. In addition, the commenter suggests that the 
Agency consider lowering the annual or other fees if the projected job 
creation level is exceeded by the project.
    Response: As noted in a response to a previous comment, the Agency 
reconsidered the points awarded for potential economic development and 
increased them from 5 to 10, which the Agency considers appropriate 
relative to the other scoring criteria.

[[Page 8458]]

    With respect to the comment on the fees, the Agency disagrees with 
the suggestion to lower annual or other fees if projected job creation 
levels are exceeded. The fee structure is independent of the number of 
jobs created and is based on the cost of implementing the program. Any 
change in fees would have an impact on the subsidy rate for the 
program, which determines dollars available. Further, if fees were tied 
to number of jobs created exceeding projected jobs, applicants would 
have an incentive to project fewer jobs being created.
    Comment: One commenter suggests awarding points to proposed 
biorefinery projects that intend to produce aviation fuels. According 
to the commenter, unlike automobiles, power plants, and other energy 
users who can turn to alternative energy sources for power, aviation 
does not have alternatives to petroleum-based fuels other than 
biofuels. Thus, to lower its carbon footprint beyond efficiency 
measures, aviation must have access to a supply of biofuels. Given 
these unique technological circumstances, the commenter believes that 
points should be awarded for proposed biorefinery projects that intend 
to produce aviation fuels. The commenter believes that declining to do 
so is risky--should aviation be unable to secure a significant supply 
of biofuels, the industry and Federal government's goal of carbon 
reduction will not be achievable.
    Response: The Agency wants to encourage all advanced biofuels 
rather than giving preference to any one biofuel. Therefore, no points 
have been awarded for production for any one area. It is expected that 
increased production, in general, will increase the supply for all 
areas.
    Comment: Two commenters suggest modifying the scoring system to 
award points to projects that benefit the national security needs of 
the U.S. For example, a biorefinery producing jet fuel used in military 
aircraft or aircraft used in homeland security-related missions 
achieves dual goals of developing the biorefinery industry in the 
United States and providing the Departments of Defense and Homeland 
Security with a domestically-produced renewable critical resource.
    Response: The Agency recognizes the importance of biofuels to 
national security and has signed a MOU with the Navy. The MOU 
encourages the development of advanced biofuels in order to secure the 
strategic energy future of the United States. However, the purpose of 
the program, as provided in the statute, is to assist in the 
development of new and emerging technologies for the development of 
advanced biofuels. Further, the Agency is concerned about establishing 
a lengthy inflexible permanent list of specific scoring criteria not 
based directly on the authorizing legislation. Instead, the Agency has 
included in the rule a provision, for which it is seeking comment, to 
allow the Administrator to award bonus points to applications that 
promote partnerships and other activities that assist in the 
development of new and emerging technologies for the development of 
advanced biofuels that further the purpose of this Program, as stated 
in the authorizing legislation. The Agency will identify these 
partnerships and other activities in a Federal Register notice each 
fiscal year. Therefore, the Agency has determined that it is 
unnecessary to add the suggested scoring criterion to the rule.
    Comment: Two commenters recommend awarding points for improved 
feedstock, where ``improved'' is defined as having better per-acre 
metrics, lower resource requirements, or otherwise great potential for 
being adopted on a sustainable and viable widespread basis on U.S. 
soil.
    Response: The Agency disagrees with the comment, because it would 
be difficult to quantify across all current and potential feedstocks. 
Further, if all of these metrics are improved, the feedstock should 
prove more appealing to the biorefineries that use the feedstock.
    Comment: One commenter encourages the Agency to retain the use of 
cellulosic feedstock as a scoring criterion. The commenter notes that 
the EISA requires that 21 billion gallons of advanced biofuel (under 
the EISA definition) be produced by 2022, and that 16 billion of those 
gallons must be must be ``cellulosic biofuel.'' Thus, consistent with 
the President's directive that executive departments and agencies work 
together through the Biofuels Interagency Working Group to meet the 
Administration's advanced biofuels goals, the commenter believes that 
it would be appropriate for the Agency to steer loan guarantee program 
funds to facilities that will help to meet the large cellulosic biofuel 
mandate under EISA. If the Agency is concerned that algae and other 
feedstock do not meet the definition of cellulosic, the commenter 
suggests that the Agency utilize its scoring discretion to include 
those feedstock as well.
    On the other hand, one commenter agrees with the removal of 
cellulosic feedstock as a scoring criterion. According to this 
commenter, all advanced biofuels should compete on a ``level playing 
field,'' and cellulosic ethanol has already received substantially 
greater government investment when compared to other advanced biofuels 
that could serve as ``drop-in'' replacements for existing petroleum 
fuels.
    One commenter points out that cellulosic biomass is the most 
abundantly available renewable energy source in rural America and 
should be favored in the scoring system.
    Response: The Agency has decided not to reinsert the cellulosic 
feedstock criterion. The Agency wants to encourage all advanced 
biofuels, except in very limited specific instances (e.g., feedstock 
that can be used for human or animal consumption). Beyond such 
instances, the Agency does not want to limit specific feedstock from 
participation in the program.

Selection of Applications for Funding (Sec.  4279.265(f))

    Comment: While a scoring model such as the one proposed may be 
helpful, one commenter questions whether the model alone is an 
appropriate determiner of loan quality. The commenter suggests the 
Agency consider additional flexibility in the loan approval process 
based on the quality of the loan.
    Response: The Agency considers factors other than the scoring 
criteria in determining loan quality, such as various technical, 
financial, and environmental factors. Identification of weaknesses 
during the Agency's review of these additional factors may result in a 
loan not being approved or they may be addressed in specific conditions 
in the Conditional Commitment.
    Comment: One commenter, who proposes a scoring system that allows 
for a maximum of 100 points, believes that a score of 55 should be 
necessary to move forward with an application.
    Response: The Agency notes that the maximum score is 100 points, 
and that a minimum score of 55 points is required in order to be 
considered for guarantee.
    Comment: One commenter recommends that, given that 50 percent of 
the program budget must be reserved for each half of the fiscal year, 
in the event that all budget for a given half has been allocated, 
eligible applications that are received in such a half be held over to 
the other half and funded in the order received, and not in a new batch 
competition. The commenter further recommends that any budget unused in 
any given fiscal year should be re-allocated in the following fiscal 
year and applications already received should be funded in the order 
they were

[[Page 8459]]

received from the prior fiscal year. According to the commenter, this 
will reduce the burden and risk of applying for the program and will 
encourage the maximum number of qualified applications to be submitted 
as early as possible.
    Response: As noted in the response to the following comment, the 
Agency intends to consider an application for funding for two funding 
competitions, which will result in some applications carrying over to 
the subsequent fiscal year. This is reflected in the rule in Sec.  
4279.265(e)(1). However, the Agency disagrees with the commenter's 
suggestion that applications that are carried over should not be re-
competed. The Agency has determined that all applications that are 
carried over will be re-competed in order to fund the highest scoring/
best qualified applications. To the extent allowed, the Agency may 
carry over mandatory funding into the next fiscal year.

Ranked Application Not Funded (Sec.  4279.265(g))

    Comment: One commenter is concerned that there could be situations 
where Agency budgetary authority for a given fiscal year is 
insufficient to fully fund strong, highly ranked projects. Given the 
size of advanced biorefinery projects, it is possible that only one or 
two projects could constitute the entirety of the Agency's budgetary 
authority in any given year. Such projects could be stronger than any 
future projects that are submitted in applications in subsequent fiscal 
years and should not be competitively disadvantaged versus subsequent 
submissions.
    The commenter, therefore, recommends allowing ranked applications 
that are not fully funded due to budgetary authority limitations to 
roll over into subsequent fiscal year budget cycles, without requiring 
a reapplication. Such applications could be re-ranked against new 
applications to ensure they are still highly ranked, and that the 
process remains competitive. They should not, however, be competitively 
disadvantaged and forced to re-apply to subsequent application periods.
    Response: The Agency acknowledges that funding in certain years may 
not be sufficient to make awards to strong projects and that the 
proposed rule was unnecessarily restrictive in limiting considerations 
of an application to the fiscal year in which it was submitted. 
Therefore, the Agency has revised the rule to allow an application to 
be competed in two consecutive competitions, which would allow 
applications submitted during the second application period of a fiscal 
year to be carried over to the next fiscal year. However, if an 
application is not funded after its second competition, the Agency will 
not consider the application any further (the applicant would have to 
submit a new application). The Agency has revised the rule (see Sec.  
4279.265(e)(1) and (g)) to make this process clear.
    Comment: Several commenters recommend that applicants not have to 
re-apply from one funding cycle to the next, but, instead, that the 
program operate in the same way as the B&I guaranteed loan program in 
this regard.
    Response: The Agency generally agrees and will consider an 
application for one additional funding cycle. If an application still 
has not been selected after a second funding cycle, the application 
will not be considered further by the Agency because the information in 
the application will no longer be current. Thus, the applicant would 
need to submit a new application for the project.

Conditions Precedent to Issuance of Loan Note Guarantee (Sec.  
4279.281(a))

    Comment: One commenter questions why a lender needs to ``certify'' 
compliance with the Anti-Lobby Act because such information on these 
activities may not be available to the lender. The commenter recommends 
disclosing these activities in the application.
    Response: The Agency disagrees. The lender is the applicant to the 
Agency, and the Agency is requiring this from the lender to ensure that 
the lender is sufficiently informed regarding the use of project fund, 
which would be determined by the lender as part of its due diligence.

Introduction (Sec.  4287.301(b))

    Comment: One commenter recommends modifying Sec.  4287.301(b) to 
allow non-project related collateral to be pledged to secure the non-
guaranteed portion of the debt. Such segregated collateral or security 
could be in the form of a letter of credit, a parent company 
collateralized guaranty, or investment securities (or a combination). 
Restrictions could be placed on the ability to access such security so 
that it not be available unless and until payment is made on the USDA 
Guaranty to the holders of the guaranteed debt. In addition, the 
lender-of-record would not be allowed to access the security until it 
has completed the foreclosure process on the project and has met the 
requirements to collect on the USDA Guaranty on any debt held by it 
that is so guaranteed. This will provide assurance that the lender-of-
record will meet its servicing responsibilities throughout the 
collateral liquidation process.
    Response: The Agency does not allow separate collateral for the 
unguaranteed portion of the loan because the Agency wants the lender to 
maintain a certain level of risk in connection with the project. This 
makes the lender more likely to service the loan properly and take an 
active interest in the success of the project. The Agency has 
structured the program to ensure that project risk is being shared on a 
pro rata basis commensurate with the percentage of the loan that is 
guaranteed versus unguaranteed. Therefore, the Agency has not revised 
the rule as suggested by the commenter.
    Comment: One commenter states that the timing of project equity 
funding under the proposed rule is under-addressed. The commenter 
recommends pro rata funding of project equity with loan disbursements, 
provided the underlying equity commitments are on a firm basis from 
creditworthy entities (defined as investment grade or otherwise deemed 
creditworthy by the lender). If the equity commitments are not from 
creditworthy entities, then upfront equity funding from less than 
creditworthy sponsors shall be required as a condition of closing.
    Response: At closing, the lender must demonstrate the equity is 
available. At project completion, the lender must certify funds were 
disbursed in accordance with the Conditional Commitment. Between 
closing and completion, there are no rule requirements regarding the 
order in which equity funds and loan funds are disbursed. However, the 
Agency agrees with the commenter's characterization that the timing of 
project equity funding is under-addressed in rule. Therefore, the 
Agency has clarified the rule (see Sec.  4279.234(c)(1)) that the 
equity requirement must be demonstrated at the time the loan is closed.

Exception Authority (Sec.  4287.303)

    Comment: One commenter recommends providing the Administrator with 
the widest possible authority for every criterion except for those 
specifically limited in the statute.
    Response: The Agency disagrees that the exception authority needs 
to be ``the widest possible authority for every criterion.'' The 
exception authority provided is adequate, and the Agency only exercises 
this authority when it is not inconsistent with applicable law and when 
not making an exception

[[Page 8460]]

adversely affects the Federal Government's interest.
Other--Working Capital Loans
    Comment: One commenter recommends that a portion of the funds 
dedicated to loan guarantees be converted to working capital and 
equipment loans for startup businesses. The commenter states that, 
although several projects are prime for the commercialization of algae 
as an alternate fuel, traditional funding sources are non-existent in 
the current economy. If lenders are not making loans, there are no 
loans to guarantee. The basics of the lending could mirror the 
guarantee program with certain exceptions:
    Commercial lending in the U.S. is virtually non-existent due to the 
current economic conditions. The inability to obtain working capital 
and construction funds has significantly slowed the progress of 
development of alternate fuels. Funds have become available in terms of 
grants for research and development (as opposed to the commercial 
applications), and the current financing opportunities are based on 
grants with milestone payments but no repayment obligation and has 
primarily supported the academic community and government laboratories. 
The commenter states that: (a) The technologies that have been created 
have no value until there is a viable market for them, and (b) 
laboratories and universities have not, to date, shown the ability to 
commercialize the algae industry. Their purpose is restricted to 
research. The commenter believes that a portion of the funds allocated 
for loan guarantees should be converted to direct loans to individuals 
and companies who plan to build products in the U.S. and employ U.S. 
workers. The guidelines for required documentation have already been 
stated; the only difference is that the Agency would be taking on the 
role of the lender, subject to servicing arrangements which would 
probably be handled by a third party service provider on behalf of the 
Agency. The risk would be greater than with a loan guarantee, but the 
rewards would include the ability to negotiate loans with shorter 
terms, requiring the borrowers to generate revenue and loan repayment 
history so that, when the economy strengthens, they are `bankable' or 
investment-grade companies. The commenter believes that this program 
will further support the concept that private companies and investors 
will be attracted to invest in these companies once they have proven 
themselves to be credit-worthy.
    Response: The statute authorizing this program does not provide the 
Agency with the authority to provide direct funding.
Other--Algae Related Projects
    Comment: One commenter requests exemptions for algae-related 
projects involving off-take contracts covering a significant percentage 
of the biocrude with the two biggest users, the U.S. airlines and the 
U.S. military, because of the urgent need to develop alternative fuel 
sources and the lack of traditional lending sources. The governments of 
many other countries are beginning to invest in commercialization, 
following the commenter's belief that additional research will be 
needed after actual commercial-scale production has begun, and the 
funds need to be made available for construction of commercial 
production facilities. The commenter states that sites could be built 
out for production at an approximate cost of $1 million to $2 million 
per acre and that, although the Agency is not a regulated or supervised 
lender, it could oversee financing of loans structured with (a) first 
lien positions, (b) fixed-cost contracts and take-out commitments, (c) 
required off-take contracts from either the U.S. military or U.S. 
airlines, (d) interest and repayment terms, and (e) all of the other 
components of traditional short-term commercial loans.
    Response: To the extent the commenter is asking for direct loan 
financing, the statute authorizing this program does not provide the 
Agency with the authority to provide direct funding. To the extent the 
commenter is seeking preferential treatment for algae-related projects, 
the Agency has adopted a policy of wanting to have a program that is, 
in part, technologically neutral. Such preferential treatment for 
algae-related projects would provide preferences for technologies 
inconsistent with this policy. The Agency believes that technology 
neutrality, along with feedstock and geographic neutrality, is critical 
to meeting the purposes of the program, which is to encourage broad-
based advanced biofuel production practices, technologies, and 
feedstock.
Other--Disbursement of Guaranteed and Unguaranteed Portions
    Comment: Three commenters believe that requiring the simultaneous 
disbursement of the guaranteed and unguaranteed portions will unduly 
burden projects using bonds with excess ``negative carry'' costs (the 
difference between the interest rate on the loans and money market 
reinvestment rates earned while funds are held pending disbursement). 
Construction periods for capital intensive projects of the type 
envisioned under the program are generally very long. Most project 
financings with long construction periods rely on bank lenders to 
disburse funds over a construction loan period and thereby avoid 
negative carry costs. However, when bonds are one of the funding 
sources, bond market convention requires simultaneous closing and 
funding of bond proceeds. In cases when bonds and bank loans are used 
together for a project financing, bonds are generally placed first with 
proceeds held in a disbursement account pending construction draws. 
Once the bond proceeds have been used, the bank lender then funds its 
share of the loans over the remainder of the construction period.
    The commenters recommend allowing the guaranteed and unguaranteed 
portions, whether capital markets offerings or bank loans, to be funded 
disproportionally in order to reduce construction period interest costs 
for the projects. To address the potential mismatch in exposure based 
on differing funding schedules, the Intercreditor Agreement will 
require that upon a default the under-funded lender (likely to be the 
guaranteed bank lender) fund its pro rata share of the loans (or 
purchase pro rata participations from the over-funded lender). As is 
typical for project financings, a requirement that satisfactory debt 
and equity commitments for the full funding of the project budget are 
entered into at closing should also be added to the list of program 
requirements.
    Response: The Agency is not adopting this comment. The lender is 
required to proportionally disburse the guaranteed and unguaranteed 
funding to reduce Agency risk and maintains the lender's financial 
stake in the project.

IV. Request for Comments

    The Agency is interested in receiving comments on all aspects of 
the interim rule. The area in which the Agency is seeking specific 
comments is identified below. All comments should be submitted as 
indicated in the ADDRESSES section of this preamble.
    1. Local owner definition. The Agency is seeking comments on the 
best mechanism for defining a local owner. Should it reflect a uniform 
distance? If not, should we define differently for different regions? 
Should we reflect different distances based on the type of technology? 
Are there any other factors the Agency should consider? Should this be 
established by notice or by

[[Page 8461]]

regulation? Please be sure to include your rationale for your 
suggestions.
    2. Administrator bonus points. The Agency is seeking comment on 
whether this is an appropriate use of Administrator bonus points. The 
Agency is also seeking comment on whether there is a mechanism more 
suitable than Administrator bonus points to adopt this program to the 
dynamic nature of the biorefinery industry. Please be sure to include 
your rationale for your suggestions.

List of Subjects in 7 CFR Parts 4279 and 4287

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

    For the reasons set forth in the preamble, title 7, chapter XLII of 
the Code of Federal Regulations, is amended as follows:

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

PART 4279--GUARANTEED LOANMAKING

0
1. The authority citation for part 4279 is amended to read as follows:

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


0
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 4279.84.
4279.203-4279.223 [Reserved]
4279.224 Loan processing.
4279.225 Ineligible loan purposes.
4279.226 Fees.
4279.227 Borrower eligibility.
4279.228 Project eligibility.
4279.229 Guaranteed loan funding.
4279.230 [Reserved]
4279.231 Interest rates.
4279.232 Terms of loan.
4279.233 [Reserved]
4279.234 Credit evaluation.
4279.235-4279.236 [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.
4279.266-4279.278 [Reserved]
4279.279 Domestic lamb industry adjustments assistance program.
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 4279.84.

    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 4279.84 of this title.
    (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 section.
    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.
    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.
    Biobased product. A product determined by the Secretary to be a 
commercial or industrial product (other than food or feed) that is 
either:
    (i) Composed, in whole or in significant part, of biological 
products, including renewable domestic agricultural materials and 
forestry materials; or
    (ii) An intermediate ingredient or feedstock.
    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 includes a clear 
description of the borrower's ownership structure and management 
experience, including, if applicable, discussion of a parent, 
affiliates, and subsidiaries, and 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; the 
availability of the resources necessary to provide those products and 
services; and pro forma financial statements for a period of 2 years, 
including balance sheet, income and expense, and cash flows.
    Byproduct. Any and all biobased products generated under normal 
operations of the proposed project that can be reasonably measured and 
monitored. Byproducts 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

[[Page 8462]]

application in a biorefinery that produces an advanced biofuel.
    Existing business. A business that has been in operation for at 
least one full year. Businesses that have undergone mergers, changes in 
the business name, changes in the legal type of entity, 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 owned and controlled by agricultural 
producers that is incorporated, or otherwise recognized by the state in 
which it operates, as a cooperatively operated business.
    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 feasibility of a proposed project or business in terms of 
its expectation for success.
    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 in a certain distance from the biorefinery as specified by the 
Agency in a Notice published in the Federal Register.
    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 would 
likely jeopardize loan performance.
    Negligent loan origination. The failure of a lender to perform 
those services that a reasonably prudent lender would 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 would act.
    Off-take 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 a facility producing eligible 
advanced biofuels and any eligible biobased 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 its obligations to protect or preserve 
collateral.
    Renewable biomass.
    (i) Materials, pre-commercial thinnings, or invasive species from 
National Forest System land or public lands (as defined in section 103 
of the Federal Land Policy and Management Act of 1976 (43 U.S.C. 1702)) 
that:
    (A) Are byproducts of preventive treatments that are removed to 
reduce hazardous fuels; to reduce or contain disease or insect 
infestation; or to restore ecosystem health;
    (B) Would not otherwise be used for higher-value products; and
    (C) 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
    (ii) 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:
    (A) Renewable plant material, including feed grains; other 
agricultural commodities; other plants and trees; and algae; and
    (B) Waste material, including crop residue; other vegetative waste 
material (including wood waste and wood residues); animal waste and 
byproducts (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.
    Rural or rural area. 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, or in the urbanized area 
contiguous and adjacent to a city or town that has a population of more 
than 50,000 inhabitants, and any area that has been determined to be 
``rural in character'' by the Under Secretary for Rural Development, or 
as otherwise identified in this definition.
    (1) An area that is attached to the urbanized area of a city or 
town with more than 50,000 inhabitants by a contiguous area of 
urbanized census blocks that is not more than 2 census blocks wide. 
Applicants from such an area should work with their Rural Development 
State Office to request a determination of whether their project is 
located in a rural area under this provision.
    (2) 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.
    (3) 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.''
    (4) 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.
    (5) 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.
    (6) The determination that an area is ``rural in character'' will 
be made by the Under Secretary of Rural Development. The process to 
request a determination under this provision is outlined in paragraph 
(6)(ii) of this definition.
    (i) The determination that an area is ``rural in character'' under 
this definition will apply to areas that are within:
    (A) An urbanized area that has two points on its boundary that are 
at least 40 miles apart, which is not contiguous or adjacent to a city 
or town that has a population of greater than 150,000 inhabitants or 
the urbanized area of such a city or town; or
    (B) An urbanized area contiguous and adjacent to a city or town of 
greater than 50,000 inhabitants that is within one-quarter mile of a 
rural area.
    (ii) Units of local government may petition the Under Secretary of 
Rural Development for a ``rural in character'' designation by 
submitting a petition to both the appropriate Rural Development State 
Director and the Administrator on behalf of the Under Secretary. The 
petition shall document how the area meets the requirements of 
paragraph

[[Page 8463]]

(6)(i)(A) or (B) above and discuss why the petitioner believes the area 
is ``rural in character,'' including, but not limited to, the area's 
population density, demographics, and topography and how the local 
economy is tied to a rural economic base. Upon receiving a petition, 
the Under Secretary will consult with the applicable Governor or leader 
in a similar position and request comments to be submitted within 5 
business days, unless such comments were submitted with the petition. 
The Under Secretary will release to the public a notice of a petition 
filed by a unit of local government not later than 30 days after 
receipt of the petition by way of publication in a local newspaper and 
posting on the Agency's Web site, and the Under Secretary will make a 
determination not less than 15 days, but no more than 60 days, after 
the release of the notice. Upon a negative determination, the Under 
Secretary will provide to the petitioner an opportunity to appeal a 
determination to the Under Secretary, and the petitioner will have 10 
business days to appeal the determination and provide further 
information for consideration.
    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.
    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, which must be satisfactory to the 
Agency, that demonstrates the potential success of the project.
    (iii) The advanced biofuel technology has successfully completed at 
least a 12 -month (four seasons) operating cycle at semi-work scale.
    Tier 1 capital. This term has the meaning given it 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 has the meaning given it 
under applicable Federal Deposit Insurance Corporation regulations.
    Tier 1 risk-based capital ratio. This term has the meaning given it 
under applicable Federal Deposit Insurance Corporation regulations.
    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 it 
under applicable Federal Deposit Insurance Corporation regulations.
    Viable commercial-scale operation. An operation is considered to be 
a 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) It has the ability to achieve market entry, suitable 
infrastructure to transport the advanced biofuel to its market is 
available, and the advanced biofuel technology and related products are 
generally competitive in the market;
    (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-month (four 
seasons) successful 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's 
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, with the concurrence of the Secretary of 
Agriculture, make an exception, on a case-by-case basis, 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 Federal government'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 (c)(5) of this 
section in order to be approved for participation in this program.
    (1) An eligible lender is any Federal or State chartered bank, Farm 
Credit Bank, other Farm Credit System institution with direct lending 
authority, and Bank for Cooperatives. These entities must be subject to 
credit examination and supervision by either an agency of the United 
States or a State. Credit unions subject to credit examination and 
supervision by either the National Credit Union Administration or a 
State agency, and insurance companies regulated by a State or National 
insurance regulatory agency are also eligible lenders. The National 
Rural Utilities Cooperative Finance Corporation is also an eligible 
lender. Savings and loan associations, mortgage companies, and other 
lenders as identified in 7 CFR 4279.29(b) are not eligible.
    (2) The lender must demonstrate the minimum acceptable levels of 
capital specified in paragraphs (c)(2)(i) through (c)(2)(iii) of this 
section at the time of application and at time of issuance of the loan 
note guarantee. This information may be identified in Call Reports and 
Thrift Financial Reports. If the information is not identified in the 
Call Reports or Thrift Financial Reports, the lender will be required 
to calculate

[[Page 8464]]

its levels and provide them to the Agency.
    (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 debarred or suspended by the Federal 
government.
    (4) If the lender is under a cease and desist order from a Federal 
agency, the lender must inform the Agency. The Agency will evaluate the 
lender's eligibility on a case-by-case basis given the risk of loss 
posed by the cease and desist order.
    (5) The Agency, in its sole determination, will approve 
applications for loan guarantees only from lenders with adequate 
experience and expertise, from similar projects, to make, secure, 
service, and collect loans approved under this subpart.
    (d) Independent credit risk analysis. The Agency will require an 
evaluation and credit rating of the total project's indebtedness, 
without consideration for a government guarantee, from a nationally-
recognized rating agency for loans of $125,000,000 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 at the earliest 
planning stages, in consultation with the prospective borrower, the 
potential environmental impacts of their proposals; 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 7 CFR part 
1940, subpart G, or successor regulations); 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 
7 CFR part 1940, subpart G, 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 (f)(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 a complete application for each 
guaranteed loan and maintain such application in its files 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 program 
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, except for Sec.  
4279.72(b), and the provisions specified in paragraphs (i)(1) through 
(i)(5) of this section.
    (1) The entire loan, the guaranteed and unguaranteed portions, must 
be secured by a first lien on all collateral necessary to run the 
project. The Agency may consider a subordinate lien position on 
inventory and accounts receivable for working capital loans provided: 
The Agency determines the working capital is necessary for the 
operation; with the subordination, the Agency remains adequately 
secured; and the subordination is in the best interests of the 
Government.
    (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. Even if all or a portion of the loan note guarantee 
has been sold to a holder, 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 off-take 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.
    (5) When a guaranteed portion of a loan is sold to a holder, the 
holder shall succeed to all rights of the lender under the Loan Note 
Guarantee to the extent of the portion purchased. The lender will 
remain bound to all obligations under the Loan Note Guarantee, Lender's 
Agreement, and the Agency program regulations. A guarantee and right to 
require purchase will be directly enforceable by a holder 
notwithstanding any fraud or misrepresentation by the lender or any 
unenforceability of the guarantee by the lender, except for fraud or 
misrepresentation of which the holder had actual knowledge at the time 
it became the holder or in which the holder participates or condones. 
The lender will reimburse the Agency for any payments the Agency makes 
to a holder of lender's guaranteed loan that, under the Loan Note 
Guarantee, would not have been paid to the lender had the lender 
retained the entire interest in the guaranteed loan and not conveyed an 
interest to a holder.
    (j) Sale or assignment of guaranteed loan. The provisions of Sec.  
4279.75 apply to this subpart.
    (k) Minimum retention. The provisions of Sec.  4279.77 apply to 
this subpart, except that the lender is required to hold in its own 
portfolio a minimum of 7.5 percent of the total loan amount.
    (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.  4279.203-4279.223   [Reserved]


Sec.  4279.224  Loan processing.

    Processing of Biorefinery Assistance Guaranteed loans under this 
subpart shall comply with the provisions found

[[Page 8465]]

in Sec. Sec.  4279.107 through 4279.187 of this chapter, except as 
provided in the following sections.


Sec.  4279.225  Ineligible loan purposes.

    For the purposes of this subpart, the ineligible purposes 
identified in Sec.  4279.114(b), (c), and (p) do not apply to this 
subpart.


Sec.  4279.226  Fees.

    Fees will be determined according to the provisions of this section 
in lieu of Sec.  4279.107.
    (a) Guarantee fee. The guarantee fee will be paid to the Agency by 
the lender and is nonrefundable. The fee may be passed on to the 
borrower. Issuance of the Loan Note Guarantee is conditioned on payment 
of the guarantee fee by closing. The guarantee fee will be the 
percentage specified in paragraphs (a)(1) or (a)(2) of this section, as 
applicable, unless otherwise specified by the Agency in a notice 
published in the Federal Register, multiplied by the principal loan 
amount multiplied by the percent of guarantee and will be paid one time 
only at the time the Loan Note Guarantee is issued.
    (1) For loans receiving a 90 percent guarantee, the guarantee fee 
is three percent.
    (2) For loans receiving less than a 90 percent guarantee, the 
guarantee fee is:
    (i) Two percent for guarantees on loans greater than 75 percent of 
total project costs.
    (ii) 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.
    (iii) 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. Unless otherwise specified by the Agency in a notice published 
in the Federal Register, 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) and (a)(2) 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) Legal authority and responsibility. Each borrower must have, or 
obtain before loan closing, 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 (g) of this section.
    (a) The project must be located in a State, as defined in Sec.  
4279.2.
    (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 advanced biofuels and biobased products. Eligible feedstocks 
include, but are not limited to, renewable biomass, including municipal 
solid waste consisting of renewable biomass, biosolids, treated sewage 
sludge, and byproducts of the pulp and paper industry. For the purposes 
of this subpart, recycled paper is not an eligible feedstock.
    (d) The majority of the biorefinery production must be an advanced 
biofuel. Unless otherwise approved by the Agency, and determined to be 
in the best financial interest of the government, the advanced biofuel 
must be sold as a biofuel. The following will be considered in 
determining what constitutes the majority of production:
    (1) When the biorefinery produces a biobased product and, if 
applicable, byproduct that has an established BTU content from a 
recognized Federal source, majority biofuel production will be based on 
BTU content of the advanced biofuel, the biobased product, and, if 
applicable, the byproduct, or
    (2) When the biorefinery produces a biobased product or, if 
applicable, byproduct that does not have an established BTU content, 
then majority biofuel production will be based on output volume, using 
parameters announced by the Agency in periodic Notices in the Federal 
Register, of the advanced biofuel, the biobased product, and, if 
applicable, the byproduct.
    (e) An advanced biofuel that is converted to another form of energy 
for sale will still be considered an advanced biofuel.
    (f) The project must provide funds (e.g., cash, subordinate 
financing, non-federal grant) of not less than 20 percent of eligible 
project costs. All projects must meet the equity requirements specified 
in Sec.  4279.234(c)(1).
    (g) The Agency will consider refinancing only under either of the 
two conditions specified in paragraphs (g)(1) and (g)(2) of this 
section.
    (1) Permanent financing used to refinance interim construction 
financing of the proposed project only if the application for the 
guaranteed loan under this subpart was approved prior to closing the 
interim loan for the construction of the facility.
    (2) Refinancing that is no more than 20 percent of the loan for 
which the Agency is guaranteeing and the purpose of the refinance is to 
enable the Agency to establish a first lien position with respect to 
pre-existing collateral subject to a pre-existing lien and the 
refinancing would be in the best financial interests of the Federal 
Government.

[[Page 8466]]

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, including those carried over from the 
previous application period. Any funds not obligated to support 
applications submitted by the end of the first application window will 
be available to support applications received by the end of the second 
window, including those carried over from the previous application 
period. 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 by the end of 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. The borrower needs to provide the remaining 20 
percent from other non-Federal sources to complete the project. 
Eligible project costs are specified in paragraph (e) 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 (d)(4) of this section.
    (1) If the loan amount is equal to or less than $125 million, 80 
percent for the entire loan amount unless all of the conditions 
specified in paragraphs (d)(1)(i) through (d)(1)(iii) of this section 
are met, in which case 90 percent for the entire loan amount.
    (i) Equity of 40 percent, excluding qualified intellectual 
property;
    (ii) Feedstock and off-take contracts of at least 1 year in 
duration; and
    (iii) Collateral coverage ratio, total discounted collateral value 
divided by total loan request, exceeding 1.5 to 1.
    (2) If the loan amount is more than $125 million and less than $150 
million, 80 percent for the entire loan amount.
    (3) If the loan amount is equal to or more than $150 million but 
less than $200 million, 70 percent on the entire loan amount.
    (4) If the loan amount is $200 million up to and including $250 
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 (e)(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.
    (f) Loans made with the proceeds of any obligation the interest on 
which is excludable from income under the Internal Revenue Code are 
ineligible. Funds generated through the issuance of tax-exempt 
obligations cannot be used to purchase the guaranteed portion of any 
Agency guaranteed loan and an Agency guaranteed loan cannot serve as 
collateral for a tax-exempt issue. The Agency may guarantee a loan with 
respect to a project at a facility that has received, or will receive, 
tax-exempt financing only when the guaranteed loan funds are used to 
finance a project that is separate and distinct from the activities at 
the facility that have been or will be financed by the tax-exempt 
obligation, and the guaranteed loan has at least a parity security 
position with the tax-exempt obligation.


Sec.  4279.230  [Reserved]


Sec.  4279.231  Interest rates.

    The provisions found in Sec.  4279.125 apply to loans guaranteed 
under this subpart, except as provided in paragraphs (a) through (c) of 
this section. Lenders are encouraged to pass interest-rate savings 
realized through the secondary market on to the borrower.
    (a) The rate on the unguaranteed portion of the loan shall not 
exceed the rate on the guaranteed portion of the loan by more than 500 
basis points;
    (b) Variable rate loans will not provide for negative amortization 
nor will they give the borrower the ability to choose its payment among 
various options.
    (c) Both the guaranteed and unguaranteed portions of the loan must 
be amortized over the same term, as provided in Sec.  4279.232(a).


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(e).
    (a) The repayment term for a loan under this subpart will be for a 
maximum period of 20 years or 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 shall 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) A loan's maturity will take into consideration the use of 
proceeds, the useful life of assets being financed, and the borrower's 
ability to repay the loan.
    (e) Repayment of the loan shall be in accordance with Sec.  
4279.125(a) and Sec.  4279.126(b) and (c).


Sec.  4279.233  [Reserved]


Sec.  4279.234  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

[[Page 8467]]

that are consistent with generally accepted commercial lending 
practices, and
    (b) Include an analysis of the credit factors associated with each 
guarantee application, including consideration of each of the following 
five elements.
    (1) Credit worthiness. Those financial qualities that generally 
make the borrower more likely 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 pledged by the borrower in support of 
the loan, including processing technology owned by the borrower and 
excluding assets acquired with other Federal funds. 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. The Agency may consider the value of 
qualified intellectual property, as defined in Sec.  4279.2, arrived at 
in accordance with GAAP standards. The value of the intellectual 
property may not exceed 30 percent of the total value of all 
collateral.
    (i) If there is an established market for the intellectual 
property, the value of the intellectual property will be valued 
according to the lender's standard discounting practice for 
intellectual property for determining adequacy of collateral.
    (ii) If there is no established market for the intellectual 
property, the value of the intellectual property will be valued not 
greater than 25 percent, as determined by the Agency, for determining 
adequacy of collateral.
    (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) The borrower shall demonstrate that it will be able to provide 
equity in the project of not less than 20 percent of eligible project 
costs at the time the loan is closed. For existing biorefineries, the 
fair market value of project equity (including the guaranteed loan 
being applied for) in real property and equipment and the value of 
qualified intellectual property based on the audited financial 
statements in accordance with Generally Accepted Accounting Principles 
may be substituted in whole or in part to meet the equity requirement. 
However, the appraisal completed to establish the fair market value of 
the real property and equipment must not be more than 1 year old. The 
Agency may require the lender to provide a more recent appraisal in 
order to reflect current market conditions. The appraisal used to 
establish fair market value of the real property and equipment must 
conform to the requirements of Sec.  4279.244. Otherwise, equity must 
be in the form of cash and cannot include other direct Federal funding 
(i.e., loans and grants).
    (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.  4279.235-4279.236  [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 on 
existing business sites in accordance with ASTM International 
Standards, 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.


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

[[Page 8468]]

    (3) Certification from the lender that the borrower is complying 
with the Davis-Bacon Act.
    (e) Surety. Surety, as the term is commonly used in the industry, 
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, 
technology that is 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 Federal agencies as authorized by the Agency) 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 inspections of the project by a 
representative of the Agency.


Sec.  4279.260   Guarantee applications--general.

    Unless otherwise noted, 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. The methods of application submittal will be specified 
in the annual Federal Register notice.
    (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 May 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 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 that 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. This analysis shall 
conform to Sec.  4279.232(b) and 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 Agency-approved credit 
reporting company for individuals who are key employees of the 
borrower, as determined by the Agency, and 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, except for 
when the borrower is a corporation listed on a major stock exchange 
unless otherwise determined by the Agency; and
    (ii) Commercial credit reports on the borrower and any parent, 
affiliate, and subsidiary firms;

[[Page 8469]]

    (5) The credit analysis specified in Sec.  4279.232(b);
    (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; and
    (7) Whether the loan note guarantee is requested prior to 
construction or after completion of construction of the project.
    (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 
Exhibit H of 7 CFR part 1940, subpart G).
    (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, a technical assessment of 
the project is required, as specified in paragraph (h) 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; and
        Feedstock risks.
    Documentation that woody biomass feedstock from National Forest
     system lands or public lands cannot be used for a higher-value
     product.
    Impacts on existing manufacturing plants or other facilities that
     use similar feedstock if the borrower's proposed biofuel production
     technology is adopted.
    Projected impact on resource conservation, public health, and the
     environment.
    Detailed analysis of project costs including:
        Project management and professional services;
        Resource assessment;
        Project design and permitting;
        Land agreements and site preparation;
        Equipment requirements and system installation;
        Startup and shakedown; and
        Warranties, insurance, financing, and operation and maintenance
         costs.
    Overall economic impact of the project, including any additional
     markets created for agricultural and forestry products and
     agricultural waste material and the potential for rural economic
     development.
    Feasibility/plans of project to work with producer associations or
     cooperatives, including estimated amount of annual feedstock,
     biofuel, and byproduct purchased from or sold to 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--principal products and
     byproducts;
    Extent of competition, including other similar facilities in the
     market area;
    Commitments from customers or brokers--principal products and
     byproducts.
    Risks related to the Advanced Biofuel industry, including
        Industry status;
        Specific market risks; and
        Competitive threats and advantages.
(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]).
    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.

[[Page 8470]]

 
    Ability of the proposed system to be commercially replicated.
    Risks related to:
        Construction of the Biorefinery;
        Advanced Biofuel production;
        Regulation and governmental action; and
        Design-related factors that may affect project success.
(E) Financial Feasibility:
    Reliability of the financial projections and the assumptions on
     which the financial statements are based, including all sources and
     uses of project capital, private or public, such as Federal funds.
     Provide detailed analysis and description of projected balance
     sheets, income and expense statements, and cash flow statements
     over the useful life of the project.
    A detailed description of:
        Investment incentives;
        Productivity incentives;
        Loans and grants; and
        Other project authorities and subsidies that affect the project.
    Any constraints or limitations in the financial projections.
    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 and
     product and byproduct prices.
    Risks related to:
        The project;
        Borrower financing plan;
        The operational units; and
        Tax issues.
(F) Management Feasibility:
    Borrower and/or management's previous experience concerning:
        Biofuel production;
        Acquisition of feedstock;
        Marketing and sale of off-take; 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 off-take, and management succession.
    Risks related to:
        Borrower as a company (e.g., development-stage);
        Conflicts of interest; and
        Management strengths and weaknesses.
(G) Qualifications:
    A resume or statement of qualifications of the author of the
     feasibility study, including prior experience, must be submitted.
------------------------------------------------------------------------

     (g) Business plan. The lender must submit a business plan that 
includes the information specified in paragraphs (g)(1) through (g)(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 the planned 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;
    (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 (h)(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 a topic 
identified in paragraphs (h)(1) through (h)(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,

[[Page 8471]]

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 method, 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 manufacturers of major components of advanced 
biofuels technology equipment 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, 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. The application must identify 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 
(h)(2)(vi) of this section.
    (i) Advanced biofuels refineries must be installed in accordance 
with applicable local, State, and national codes and applicable local, 
State, and Federal regulations. Identify zoning and code requirements 
and necessary 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, the 
schedule for securing those 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. The application must provide adequate and 
appropriate evidence of the availability of the feedstocks required for 
the advanced biofuels refinery to operate as designed. Indicate the 
type and quantity of the feedstock, and discuss storage of the 
feedstock, 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. The application must provide 
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. 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) A description of the project site that addresses issues such as 
site access, foundations, and backup equipment when applicable;
    (B) A completed Form RD 1940-20 and an environmental assessment 
prepared in accordance with Exhibit H of 7 CFR part 1940, subpart G; 
and
    (C) Identification of any unique construction and installation 
issues.
    (iii) Sites must be controlled by the eligible borrower for at 
least the financing term of the loan note guarantee.
    (5) Project development schedule. The application must describe 
each significant task, its beginning and end, and its relationship to 
the time needed to initiate and carry the project through startup and 
shakedown. 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. The application must demonstrate that 
equipment required by the biorefinery is available and can be procured 
and delivered within the proposed project development schedule. 
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. The application must provide 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.
    (8) Operations and maintenance. The application must provide the 
operations and maintenance requirements of the biorefinery necessary 
for the biorefinery to operate as designed over its useful life. 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,

[[Page 8472]]

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) Scoring information. The application must contain information 
in a format that is responsive to the scoring criteria specified in 
Sec.  4279.265(d).
    (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 lender concludes that the project has 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, which can be 
obtained online at http://fedgov.dnb.com/webform.
    (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 (c)(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 May 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 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 byproducts produced and whether the advanced biofuel 
meets an applicable renewable fuel standard. A maximum of 10 points can 
be awarded. Points to be awarded will be determined as follows:
    (i) If the business has less than or equal to a 50 percent 
commitment for each of the following: feedstocks, marketing agreements 
for the advanced biofuel, and the byproducts produced or if the project 
does not produce an advanced biofuel that meets an applicable renewable 
fuel standard, 0 points will be awarded.
    (ii) If the business has a greater than 50 percent commitment for 
any one or two of the following: feedstocks, marketing agreements for 
the advanced biofuel, and the byproducts produced and if the project 
produces an advanced biofuel that meets an applicable renewable fuel 
standard, 5 points will be awarded.
    (iii) If the business has a greater than 50 percent commitment for 
each of the following: Feedstocks, marketing agreements for the 
advanced biofuel, and the byproducts produced and if the project 
produces an advanced biofuel that meets an applicable renewable fuel 
standard, 10 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 any 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 similar advanced biofuel 
biorefineries, 5 points will be awarded.
    (ii) If there are other similar 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. 
Points to be awarded will be determined as follows:
    (i) Five (5) points will be awarded if any one of the three 
conditions specified in paragraphs (d)(4)(i)(A) through (d)(4)(i)(C) of 
this section is met.

[[Page 8473]]

    (A) 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;
    (B) 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; or
    (C) At least 60 percent of the dollar value of the biobased 
products to be produced by the proposed biorefinery will be sold to 
producer associations and cooperatives.
    (ii) Three (3) points will be awarded if any one of the three 
conditions specified in paragraphs (d)(4)(ii)(A) through (d)(4)(ii)(C) 
of this section is met.
    (A) At least 30 percent of the dollar value of feedstock to be used 
by the proposed biorefinery will be supplied by producer associations 
and cooperatives;
    (B) At least 30 percent of the dollar value of the advanced 
biofuel, or an advanced biofuel converted to electricity, to be 
produced by the proposed biorefinery will be sold to producer 
associations and cooperatives; or
    (C) At least 30 percent of the dollar value of the biobased 
products to be produced by the proposed biorefinery will be sold to 
producer associations and cooperatives.
    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 products. In order to receive the 5 points 
under this criterion, at least $600,000 worth of feedstock purchases 
must be from producer associations or cooperatives, at least $3,000,000 
worth of biofuel must be sold to producer associations or cooperatives, 
or at least $1,200,000 worth of biobased products must be sold to 
producer associations or cooperatives.
    (5) The level of financial participation by the borrower, including 
support from non-Federal government sources and private sources. Other 
direct Federal funding (i.e., direct loans and grants) will not be 
considered as part of the borrower's equity participation. A maximum of 
15 points can be awarded. Points to be awarded will be determined as 
follows:
    (i) If the borrower's equity 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, 8 points will be awarded.
    (ii) If the borrower's equity plus other resources results in a 
debt-to-tangible net worth ratio equal to or less than 2.5 to 1, 15 
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 (e.g., water, soil, forest), 
public health (e.g., potable water, air quality), and the environment 
(e.g., compliance with an applicable renewable fuel standard, 
greenhouse gases, emissions, particulate matter). A maximum of 10 
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), 3 points will be awarded.
    (ii) If process adoption will have a positive impact on two of the 
three impact areas, 6 points will be awarded.
    (iii) If process adoption will have a positive impact on all three 
impact areas, 10 points will be awarded.
    (iv) If the project proposes to use a feedstock that can be used 
for human or animal consumption as a feedstock, 5 points will be 
deducted from the score.
    (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 10 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 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 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, 10 points will be awarded.
    (iii) If the feedstock is wood pellets, no points will be awarded 
under this criterion.
    (8) The potential for rural economic development. If the project is 
located in a rural area and the business creates jobs with an average 
wage that exceeds the County median household wages where the 
biorefinery will be located, 10 points will be awarded.
    (9) The level of local ownership of the biorefinery proposed in the 
application. A maximum of 5 points can be awarded. Points to be awarded 
will be determined as follows:
    (i) If local owners have an ownership interest in the biorefinery 
of more than 20 percent but less than or equal to 50 percent, 3 points 
will be awarded.
    (ii) If local owners have an ownership interest in the biorefinery 
of more than 50 percent, 5 points will be awarded.
    (10) Whether the project can be replicated. A maximum of 10 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.), 5 points will be awarded.
    (ii) If the project can be commercially replicated nationally, 10 
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, 
5 points will be awarded.
    (12) The Administrator can award up to a maximum of 10 bonus points 
to applications that promote partnerships and other activities that 
assist in the development of new and emerging technologies for the 
development of advanced biofuels so as to increase the energy 
independence of the United States; promote resource conservation, 
public health, and the environment; diversify markets for agricultural 
and forestry products and agriculture waste material; and create jobs 
and enhance the economic development of the rural economy. These 
partnerships and other activities will be identified in a Federal 
Register notice each fiscal year. However, the Administrator's bonus 
points may not raise an applicant's score to more than 100 points.
    (e) Ranking of applications. The Agency will rank all scored 
applications to create a priority list of scored applications for the 
program. Unless otherwise specified in a notice published in the 
Federal Register, the Agency will rank applications by approximately 
January 31 for complete and eligible applications received on or before 
November 1 and by approximately July 31 for complete and eligible 
applications received on or before May 1.
    (1) All applications received on or before November 1 and May 1 
will be ranked by the Agency and will be

[[Page 8474]]

competed against the other applications received on or before such 
date. All applications that are ranked will be considered for selection 
for funding for that application cycle.
    (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 (f)(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 for an 
amount less than or equal to 25 percent of the program's outstanding 
budgetary authority.
    (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 application cycle in which it was submitted will be 
carried forward one additional application cycle, which may be in 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.  4279.266-4279.278  [Reserved]


Sec.  4279.279  Domestic lamb industry adjustment assistance program.

    The provisions of Sec.  4279.175 do not apply to this subpart.


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) 
of subpart B of this part and paragraphs (a) through (h) 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. The lender can request the guarantee prior to 
construction, but must still certify to all conditions in this section.
    (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, restrictions, 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 
provided.
    (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.

[[Page 8475]]

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 through 3144, 
3146, and 3147 of title 40 U.S.C., and title 29 of the Code of Federal 
Regulations. The lender will certify that 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.
    (h) The lender certifies that the borrower has provided the equity 
in the project identified in the Conditional Commitment.


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, biobased products, and, 
if applicable, byproducts produced in order to assess whether project 
goals related to majority production 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) A 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

0
3. The authority citation for part 4287 continues to read as follows:

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


0
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 Fiscal Year 2009 and Fiscal Year 2010 loan guarantees.
4287.309-4287.400 [Reserved]
Subpart D--Servicing Biorefinery Assistance Guaranteed Loans


Sec.  4287.301  Introduction.

    (a) This subpart supplements 7 CFR part 4279, subparts A and C, 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 of 
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.

    The exception authority provisions of this paragraph apply to this 
subpart instead of those in Sec.  4279.15 of subpart A of part 4279 of 
this chapter. The Administrator may, with the concurrence of the 
Secretary of Agriculture, make an exception, on a case-by-case basis, 
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 Federal government's interest.


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 (m) of this section, 
all loans guaranteed under this subpart shall comply with the 
provisions found in Sec. Sec.  4287.101 through 4287.180 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 quarterly reports, 
unless more frequent ones are needed as 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 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. The financial report requirements specified 
in Sec.  4287.107(d) apply except as follows:
    (1) The financial reports required under Sec.  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) must be audited financial statements and must be submitted 
within 180 days.
    (d) Additional loans. Instead of complying with the additional

[[Page 8476]]

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 only with prior written Agency approval. 
The Agency will only approve additional expenditures or new loans 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. Any additional expenditure or loan made by 
the lender must be junior in priority to the loan guaranteed under 7 
CFR part 4279 except for working capital loans for which the Agency may 
consider a subordinate lien provided it is consistent with the 
conditional provisions specified in Sec.  4279.202(i)(1).
    (e) Interest rate adjustments. The provisions of Sec.  4287.112 
apply, except for Sec.  4287.112(a)(2).
    (f) 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 must give prior approval for 
the release of collateral, except as specified in paragraph (f)(1) of 
this section or where the release of collateral is made under the 
abundance of collateral provision of the applicable security agreement, 
subject to the provisions of paragraph (f)(3) of this section. 
Appraisals on the collateral being released are 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 (subject to the provisions of 
paragraph (f)(3) of this section) 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 in order of lien priority 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.
    (g) Subordination of lien position. In addition to complying with 
the provisions found in Sec.  4287.123, a subordination must not extend 
the term of the guaranteed loan.
    (h) Transfers and assumptions. Transfers and assumptions shall 
comply with Sec.  4287.134, except as specified in paragraphs (h)(1) 
through (h)(3) of this section, and with paragraphs (h)(4) and (h)(5) 
of this section.
    (1) In complying with Sec.  4287.134(a), eligible applicants shall 
be determined in accordance with subpart C of part 4279 of this chapter 
instead of subpart B of part 4279.
    (2) Any new loan terms under Sec.  4287.134(b) must be within the 
terms authorized by Sec.  4279.232 of subpart C of part 4279 of this 
chapter instead of Sec.  4279.126 of subpart B of part 4279.
    (3) Additional loans under Sec.  4287.134(e) will be considered as 
a new loan application under subpart C of part 4279 of this chapter 
instead of subpart B of part 4279.
    (4) 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 published 
in the Federal Register.
    (5) 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 of the borrower, 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.
    (6) 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 and the 
change otherwise conforms with applicable regulations.
    (i) 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.
    (j) Default by borrower. The provisions of Sec.  4287.145 apply to 
this subpart, except that:
    (1) Instead of complying with Sec.  4287.145(b)(2), in the event a 
deferment, rescheduling, reamortization, or moratorium is accomplished, 
it will be limited to the remaining life of the collateral or remaining 
limits as contained in Sec.  4279.232(a) of part 4279 of this chapter; 
and
    (2) 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.
    (k) Protective advances. All protective advances made by the lender 
must comply with Sec.  4287.156 and the provisions of paragraphs (k)(1) 
and (k)(2) of this section.
    (1) Instead of the $5,000 specified in Sec.  4287.156(c), the 
Agency's 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 percent of the guaranteed loan, whichever is less.
    (l) Liquidation. Liquidations shall comply with Sec.  4287.157, 
except that, in complying with Sec.  4287.157(d)(13), lenders are to 
obtain an independent appraisal report meeting the requirements of 
Sec.  4279.244, instead of Sec.  4279.144, when the outstanding balance 
of principal and accrued interest is $200,000 or more.
    (m) Determination of loss and payment. In addition to complying 
with Sec.  4287.158, 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.  4287.308  Fiscal Year 2009 and Fiscal Year 2010 loan guarantees.

    Any loan guarantee application that has been submitted to the 
Agency under this program prior to March 16, 2011 may submit to the 
Agency a written request for an irrevocable election to

[[Page 8477]]

have the guaranteed loan serviced in accordance with this subpart. Such 
an election must be made by October 1, 2011.


Sec. Sec.  4287.309-4287.400  [Reserved]

    Dated: January 31, 2011.
Dallas Tonsager,
Under Secretary, Rural Development.
[FR Doc. 2011-2473 Filed 2-11-11; 8:45 am]
BILLING CODE 3410-XY-P