[Federal Register Volume 76, Number 247 (Friday, December 23, 2011)]
[Rules and Regulations]
[Pages 80217-80226]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-32570]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Part 1940

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Part 4290

RIN 0570-AA80


Rural Business Investment Program

AGENCY: Rural Business-Cooperative Service; Rural Utilities Service; 
Rural Housing Service; and Farm Service Agency, USDA.

ACTION: Interim rule with request for comments.

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SUMMARY: The Rural Business-Cooperative Service is amending its 
regulations for the Rural Business Investment Program (RBIP) to conform 
it to the 2008 Farm Bill, to add provisions for Rural Business 
Investment Companies (RBIC) that wish to participate in a non-leveraged 
capacity, and to make several clarifications to the existing rule for 
leveraged RBICs. In addition, this rule amends the categorical 
exclusions from the National Environmental Policy Act by adding 
categorical exclusions for the RBIP for both leveraged and non-
leveraged RBICs.

DATES: Effective date. This rule will become effective January 23, 
2012.
    Comment date. Written comments on the rule must be received by the 
Agency or carry a postmark or equivalent no later than January 23, 
2012. The comment period for the information collection under the 
Paperwork Reduction Act of 1995 ends January 23, 2012.

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: Regulation. Michael Foore, U.S. 
Department of Agriculture, 1400 Independence Ave. SW., Washington, DC, 
20250; telephone number: (202) 690-4730; email: 
[email protected].
    Applications and other program materials. Mark Brodziski, Specialty 
Programs Division, U.S. Department of Agriculture, 1400 Independence 
Ave. SW., Washington, DC 20250; telephone number: (202) 720-1400; 
email: [email protected].

SUPPLEMENTARY INFORMATION:

Compliance With Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
rule does not constitute a ``significant'' regulatory action under 
Executive Order 12866. Therefore, a regulatory assessment is not 
required.

Programs Affected

    The Catalog of Federal Domestic Assistance number for the program 
impacted by this action is 10.860, Rural Business Investment Program.

Executive Order 12372

    Executive Order 12372 requires intergovernmental consultation with 
State and local officials. For the Rural Business Investment Program, 
the Agency will conduct intergovernmental consultation in the manner 
delineated in 7 CFR part 3015, subpart V, which contains the Agency's 
regulations for implementing Executive Order 12372.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. The Agency has determined that this rule meets the 
applicable standards provided in section 3 of the Executive Order. 
Additionally, (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 to the rule; and (3) administrative appeal procedures, if 
any, must be exhausted before litigation against the Department or its 
agencies may be initiated, in accordance with the regulations of the 
National Appeals Division of USDA at 7 CFR part 11.

Executive Order 13132, Federalism

    The policies contained in this rule do not have any substantial 
direct effect on states, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
interim rule impose substantial direct compliance costs on state and 
local governments. Therefore, consultation with states is not required.

Executive Order 13175

    Between October 2010 and January 2011 the United States Department 
of Agriculture (USDA) hosted seven regional 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 established 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 as needed. The policies contained in this 
rule do not have implications that preempt Tribal law.

Regulatory Flexibility Act Certification

    Under section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. 
605(b), the Agency certifies that this rule will not have a significant

[[Page 80218]]

economic impact on a substantial number of small entities. The Agency 
made this determination based on the fact that this regulation only 
impacts those who choose to participate in the program. Small entity 
applicants will not be impacted to a greater extent than large entity 
applicants.

Unfunded Mandates

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

Paperwork Reduction Act

    The information collection requirements contained in this interim 
rule have been approved by the Office of Management and Budget (OMB) 
under OMB control number 0570-0051.

E-Government Act Compliance

    Rural Development is committed to complying with the E-Government 
Act, to provide increased opportunities for citizens to access 
Government information and services electronically.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' The Agency has determined that 
this action does not constitute a major Federal action significantly 
affecting the quality of the human environment and, in accordance with 
the National Environmental Policy Act of 1969, 42 U.S.C. 4321 et seq., 
an Environmental Impact Statement is not required.
    The granting or issuance of a license under the non-leveraged RBIP 
program is not considered a major federal action, as defined by Council 
on Environmental Quality at 40 CFR 1508.18, Regulations for 
Implementing the Procedural Provisions of the National Policy Act of 
1969 (NEPA), and therefore does not require any further NEPA 
documentation.

I. Background

A. Rural Business Investment Program

    On June 8, 2004, the Agency published an interim rule for the Rural 
Business Investment Program (RBIP) (69 FR 32200), a program to promote 
economic development and the creation of wealth and job opportunities 
among individuals living in rural areas and to help meet the equity 
capital investment needs primarily of smaller enterprises located in 
such areas. Under the RBIP, for-profit Rural Business Investment 
Companies (RBICs) make venture capital investments in rural areas with 
the objectives of fostering economic development in such areas and 
returning maximum profits to the RBIC's investors. The regulations set 
forth the criteria USDA uses to select and license RBICs, guarantee its 
debentures, and to make grants to RBICs.
    Since the interim rule was published, the Food, Conservation, and 
Energy Program of 2008 (the 2008 Farm Bill) was enacted. The 2008 Farm 
Bill affects several provisions of the RBIP rule. Specifically, Section 
6027 of the 2008 Farm Bill results in regulatory modifications 
associated with:
     Issuance and guarantee of trust certificates (7 U.S.C. 
2009cc-5(b)(3)(A));
     Fees (7 U.S.C. 2009cc-6);
     Rural Business Investment Companies (7 U.S.C. 2009cc-
8(c));
     Financial institution investments (7 U.S.C. 2009cc-9);
     Contracting of functions (7 U.S.C. 2009cc-16); and
     Funding (7 U.S.C. 2009cc-18).
    In addition, the Agency is looking to amend the RBIP to allow RBICs 
to participate without financial leverage from the Agency. The Agency 
published an Advanced Notice of Proposed Rulemaking (ANPRM) on March 
29, 2007, (72 FR 14712) requesting comments on operating the RBIP 
program to allow non-leveraged RBICs. Ten comment letters were 
received, which were generally supportive of the addition of non-
leveraged RBICs to the program. The Agency also received seven comment 
letters on the Interim Rule, published on June 8, 2004 (69 FR 32200), 
implementing the Rural Business Investment Program. Of these seven 
letters, three mentioned a non-leveraged RBIC program and each was 
supportive of the Agency implementing a non-leveraged RBIC program.
    The Agency is implementing a non-leveraged RBIC program because 
program funding for leveraged RBICs is not available at this time. 
However, the Agency believes the RBIP is a valuable program that will 
facilitate investment in rural areas even without federal financial 
assistance. The amendments implementing the non-leveraged RBIC 
provisions are similar to many of the provisions found in the U.S. 
Small Business Administration's (SBA) Small Business Investment Company 
(SBIC) non-leveraged program (7 CFR Part 107) and thus should be 
familiar to potential RBICs who may be interested in this program.
    Lastly, the Agency is taking this opportunity to clarify several of 
the provisions of the regulation.

B. Categorical Exclusions From the National Environmental Policy Act

    The RBIC program was modeled after SBA's SBIC program, which has 
been in effect for more than 40 years, and in 2005, as statutorily 
required, the Agency and SBA entered into an interagency agreement for 
SBA administrative support of the RBIP. To satisfy its requirements 
under the National Environment Policy Act (NEPA), SBA has in place a 
specific Categorical Exclusion (CatEx) for the SBIC program established 
under the SBA's Standard Operating Procedure Section 90 No. 57 in 7(f) 
(dated February 1, 1980). A categorical exclusion is a category of 
actions that do not individually or cumulative have a significant 
effect on the human environment. The SBIC CatEX provides that the 
following category of actions is categorically excluded from the 
preparation of Environmental Assessments or Environmental Impact 
Statements under NEPA:
    Small Business Investment Company Program Actions. In those cases 
where the SBA is approving an SBIC action of financing construction of 
facilities or purchase of land, then the SBA may be required to prepare 
an environmental assessment.
    Based upon the years of experience that SBA has had with the RBIP/
SBIC program model, RBS is incorporating a similar CatEx into RBS's 
existing National Environmental Policy Act rule.
    Because the overall RBIP approach is for a RBIC to provide working 
capital to its portfolio companies, there is little potential for on-
the-ground impacts to the natural environment, while likely impacts to 
the human environment are increased employment and incomes to rural 
areas. To ensure that any investments will not result in project 
specific impacts to important resources, the CatEx provides for the 
preparation of an environmental assessment only ``(i)n those cases 
where the Agency is approving an RBIP action of financing construction 
for facilities or purchase and development of land.'' In addition, the 
Agency will not approve licenses for RBICs in only one geographic area, 
but will favor wide-spread areas for rural investments, thereby 
ensuring that no potential cumulative impacts might arise. In summary, 
the RBIP is a useful tool that helps the Agency accomplish one of its 
primary missions to advance rural development. The provision of a new 
CatEx for licensing RBIC's is justified by USDA's and SBA's

[[Page 80219]]

experience with RBIC and SBIC investments which, thus far, have had no 
significant impact to the natural environment, individually or 
cumulatively.

II. Discussion of Changes--Rural Business Investment Program

    The following paragraphs discuss the changes being made to the RBIP 
regulations. As noted above, these changes are the result of (1) 
conforming the regulation to the 2008 Farm Bill, (2) incorporating 
provisions to allow RBICs to participate without leveraging, and (3) 
clarifying the existing regulation.
    A. The Agency is adding a new section, Sec.  4290.15, Leveraged and 
Non-leveraged Rural Business Investment Companies, to clarify which 
provisions of this part apply to leveraged RBICs and which apply to 
non-leveraged RBICs.
    B. In Sec.  4290.50, the Agency is amending several existing 
definitions and adding several others, as discussed below.
    Community Development Finance. The current definition of Community 
Development Finance makes it possible for commercial bankers to 
qualify, even if they lack experience in debt securities or with 
equity-type instruments. This is not the Agency's intent. Therefore, 
the Agency is replacing ``debt'' with ``debt securities.''
    Debenture. This definition is being revised to indicate that the 
debenture may be prepaid at any time without penalty. This change is 
being made in response to Section 6027(a) of the 2008 Farm Bill.
    Includible Non-Cash Gains, Loans and Investments, Retained Earnings 
Available for Distribution, and Undistributed Net Realized Earnings. 
These definitions are being revised to make reference to ``or other 
USDA-approved form(s)).'' These definitions refer to specific SBA 
forms. The Agency may use other forms to implement this program in the 
future (for example, for non-leveraged RBICs). Thus, adding this phrase 
now will allow the Agency the flexibility to use other forms in the 
future should it so decide.
    Institutional Investor. This definition is being revised, per 
Section 6027(d)(1) of the 2008 Farm Bill, to allow investment pools 
created entirely by a bank or savings association to be able to 
participate in the RBIP.
    Leveraged RBIC and Non-leveraged RBIC. These terms are being 
defined in order to implement these regulations clearly as the result 
of the addition of provisions for non-leveraged RBICs.
    Rural Area. This change is being made because the 2008 Farm Bill 
replaced the previous rural area definition specific to the RBIP with a 
new definition that applies to several Rural Development programs 
including the Business and Industry Guaranteed Loan program.
    Secretary. This definition is being revised by adding ``his or her 
designee'' to provide flexibility in implementing the program.
    State. This definition is being revised to conform to the latest 
definition being used in other Agency programs.
    C. Section 4290.110 is being revised by adding the phrase ``(and 
any other aspect identified by the USDA in a Federal Register 
notice).'' This is being added to provide the Agency flexibility should 
other aspects associated with qualified management need to be 
considered.
    D. Section 4290.200 is being clarified by replacing ``Sec.  
4290.200'' with ``Sec.  4290.210'' so that the paragraph does not 
unnecessarily refer back to itself.
    E. Under Sec.  4290.210, the Agency is adding ``Unless otherwise 
specified in a Federal Register notice'' to paragraph (a) of this 
section. This is being done to provide the Agency flexibility to 
specify other Capital requirements, within the constraints of the 
authorizing statute, if it should subsequently determine such are 
needed for either leveraged RBICs or non-leveraged RBICs.
    In addition, the Agency is adding a new paragraph that addresses 
the time frame that each RBIC will have to meet the capital 
requirements set forth in the section. This change is being made in 
response to Section 6027(c) of the 2008 Farm Bill.
    F. In Sec.  4290.300, the Agency is replacing ``using the 
application packet'' with ``using an appropriate application packet.'' 
This is being done because of the provisions for non-leveraged RBICs, 
which are likely to use a different application packet than leveraged 
RBICs.
    G. In Sec.  4290.330, the Agency is renaming the section to include 
reference to guarantees, so that the section applies to issuance fees 
for both grants and debenture guarantees. In addition, the section is 
being amended to set the amount of fee that the Agency will charge for 
the issuance of a grant or debenture guarantee at $500. This fee amount 
is also applicable if the Agency issues both a grant and debenture 
guarantee. These amendments are being made in response to Section 
6027(b)(1) of the 2008 Farm Bill.
    H. Section 4290.503(e)(2) is being revised to make reference to 
``or other USDA-approved form(s)'' for the same reason cited earlier in 
paragraph B of the preamble. In addition, the SBA Web site reference in 
Sec.  4290.503(a) has been updated.
    I. Section 4290.504(a) is being revised by removing ``for which you 
will receive the necessary software'' because it is unnecessary to the 
implementation of the equipment and office requirements covered in this 
section.
    J. Section 4290.509(a) is being clarified by adding the phrase 
``whichever is later.''
    K. Several changes are being made to Sec.  4290.550 as follows:
    First. In paragraph (a), the Agency is replacing ``In this 
4290.550'' with ``For the purposes of this section,'' to more 
appropriately characterize the applicability of the section.
    Second. In paragraph (b), the Agency is adding ``or other USDA-
approved form(s)'' for the same reasons cited in paragraph B of the 
preamble.
    Third. In paragraph (c), the Agency is replacing ``under this Sec.  
4290.550'' with ``under this section'' to more appropriately 
characterize the application of the section.
    Fourth. The Agency is adding the word ``and'' to the end of 
paragraph (d)(2) to clarify that all three conditions are to be met.
    L. The SBA Web site reference in Sec.  4290.600(a) and (d) have 
been updated.
    M. Section 4290.610(b) is being amended to make reference to ``or 
other USDA-approved form(s)'' for the same reason cited earlier in 
paragraph B of the preamble.
    N. Several paragraphs in Sec.  4290.630, including the title to the 
section, and Sec.  4290.640 and its title are being revised by either 
removing reference to a specific SBA form number or adding reference to 
``or other USDA-approved form(s)'' for the same reasons cited in 
paragraph B of the preamble. In addition, the SBA Web site reference in 
Sec.  4290.630(c) has been updated.
    O. In Sec.  4290.720, the Agency is making three changes as 
described below.
    First. In the examples presented in paragraph (d)(1), the Agency is 
removing reference to ``wind farms, or power facilities (including 
solar, geothermal, hydroelectric, or biomass power facilities)'' 
because such enterprises are now integral to the Agency's mission for 
energy development in rural America.
    Second. The Agency is changing paragraph (i) by replacing ``15 
percent'' with ``25 percent.'' This change is being made in response to 
Section 6027(d)(2) of the 2008 Farm Bill.
    Third. In paragraph (i), the Agency is replacing reference to 
``Regulatory Capital'' with reference to the

[[Page 80220]]

``ownership interests'' of a RBIC, either alone or in conjunction with 
other System institutions. This change is being made to align the 
program with 7 U.S.C. 2009cc-9(c).
    P. The Agency is revising Sec.  4290.740 in two ways. First, the 
Agency is changing the calculation of the ``overline'' limitation by 
changing ``20 percent'' to read ``10 percent'' and changing the base 
that the 10 percent is calculated from just Regulatory Capital (with 
regulatory permitted Distributions) to Regulatory Capital (with 
regulatory permitted Distributions) and Leverage. Second, the Agency is 
changing ``current cost'' to read ``original cost'' in paragraph (b).
    The Agency is making these changes for several reasons. First, the 
changes provide the RBIC with greater flexibility in making its 
portfolio investments without board approval, which is consistent with 
industry standards. Second, the changes make the RBIC program more 
consistent with the SBIC program, which implemented a similar provision 
in the SBIC program in 2009. Third, these changes further our efforts 
to model the RBIC program after the SBIC program, as directed in the 
Conference Report (H.R. 107-424) of the authorizing statute for the 
RBIC program (Farm Security and Rural Investment Act of 2002). 
Specifically the Conference Report stated that ``It is the expectation 
of the Managers that a considerable share of the rules and operating 
procedures for this program will be the same as the rules and operating 
procedures for the Small Business Investment Company program.''
    Q. The Agency is revising Sec.  4290.815(b) to remove ``If you have 
outstanding Leverage or plan to obtain Leverage'' because this phrase 
is unnecessary for leveraged RBICs and could create confusion as 
whether the paragraph would apply to non-leveraged RBICs and, if so, 
how.
    R. Section 4290.1220 is being revised to make reference to ``or 
other USDA-approved form(s)'' for the same reason cited paragraph B of 
the preamble.
    S. Several paragraphs in Sec.  4290.1230 are being revised by 
either removing reference to a specific SBA form number or adding 
reference to ``or other USDA-approved form(s)'' for the same reasons 
cited paragraph B of the preamble.
    T. The Agency is revising Sec.  4290.1600(d) by removing reference 
to ``fees'' in the list of items that the Secretary may establish and 
in its place adding a provision to allow agents of the Secretary to 
collect a fee of not more than $500 when they perform the functions 
described in 7 U.S.C. 2009cc-5(e)(2). These changes are being made in 
response to Section 6027(b)(2) of the 2008 Farm Bill.
    U. The Agency is revising Sec.  4290.1810(a) by replacing ``By 
issuing Debentures'' with ``Upon acceptance of a license to operate as 
a RBIC'' and adding ``all documents relating to the license, including, 
without limitation, the Participation Agreement and.'' These changes 
are being made so that these provisions are applicable to both 
leveraged RBICs and non-leveraged RBICs.
    V. Lastly, the Agency is proposing to amend this part by adding a 
new subpart O to allow a RBIC to apply for a license without leverage. 
In response to the March 29, 2007, ANPRM, the Agency received 10 
comment letters, which favored allowing non-leveraged RBICs under the 
RBIP. The Agency also had received comment letters on the RBIP Interim 
Rule, of which three addressed a non-leveraged RBIC program. All three 
comment letters encouraged the Agency to consider a non-leveraged RBIC 
program. The provisions in the subpart for non-leveraged RBICs are 
based primarily on comments received on the March 29, 2007, ANPRM and 
on similar provisions found in the SBA's SBIC non-leveraged program.
    Some of the key aspects of the provisions for non-leveraged RBICs 
are:
     The Agency rather than SBA will be responsible for 
implementing the non-leveraged RBIC provisions.
     The Agency will announce in a Federal Register notice 
those types of investors in the RBIC that are eligible to participate 
as a non-leveraged RBIC. If the eligible categories/types of investors 
changes, the Agency will publish subsequent notices in the Federal 
Register updating the list. However, such changes will not be applied 
retroactively.
     Applications for non-leveraged status will be accepted at 
any time during the year.
     While the Agency may select one, more than one, or none of 
the applying RBICs for participation as a non-leveraged RBIC, such 
selection will not be made on a competitive basis.
    Most of the provisions for leveraged RBICs would be applicable to 
non-leveraged RBICs. However, there are a number of provisions (either 
a section or a paragraph) for leveraged RBICs that will not be 
applicable to non-leveraged RBICs. There are also a number of leveraged 
RBIC provisions that have been modified as that provision would be 
applied to non-leveraged RBICs. Finally, there are two subparts 
(subpart J, Financial Assistance for RBICs, and subpart N, Operational 
Assistance Grants for RBICs) that would not be applicable in their 
entirety to non-leveraged RBICs.

III. Discussion of Changes--Categorical Exclusion From NEPA

    A new paragraph (c)(7) is being added to 7 CFR 1940.310 to 
incorporate the new categorical exclusions for the RBIP. This new 
paragraph is set out in the regulatory text of this rule.
    As noted above, this change is being made based on the RBIP being 
based its similarity to and derivation from the SBA's SBIC program, 
which has a similar CatEx provision for their SBIC program, and the 
experience of the SBIC program in which, thus far, no significant 
impact to the natural environment, individually or cumulatively, has 
occurred.

List of Subjects

7 CFR Part 1940

    Administrative practice and procedure, Agriculture, Allocations, 
Grant programs--Housing and community development, Loan programs--
Agriculture, Rural areas.

7 CFR Part 4290

    Community development, Government securities, Grant programs--
business, Securities, Small businesses.

    For the reasons stated in the preamble, part 1940 of Chapter XVIII 
and part 4290 of Chapter XLII of the Code of Federal Regulations are 
amended as follows:

CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS-COOPERATIVE 
SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT 
OF AGRICULTURE

PART 1940--GENERAL

0
1. The authority citation for part 1940 continues to read as follows:

    Authority:  5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.

Subpart G--Environmental Program

0
2. Section 1940.310 is amended by adding a new paragraph (c)(7) to read 
as follows:


Sec.  1940.310  Categorical exclusions from National Environmental 
Policy Act (NEPA) reviews.

* * * * *
    (c) * * *
    (7) Rural Business Investment Program actions, which can be divided 
into:
    (i) Non-leveraged program actions that include licensing by USDA of 
Rural

[[Page 80221]]

Business Investment Companies (RBIC); and
    (ii) Leveraged program actions that include licensing by USDA of 
RBIC and Federal financial assistance in the form of technical grants 
or guarantees of debentures of an RBIC, unless such federal assistance 
is used to finance construction or development of land.
* * * * *

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

PART 4290--RURAL BUSINESS INVESTMENT COMPANY (RBIC) PROGRAM

0
3. The authority citation for part 4290 continues to read as follows:

    Authority:  7 U.S.C. 1989 and 2099cc et seq.

Subpart A--Introduction to Part 4290

0
4. A new Sec.  4290.15 is added to read as follows:


Sec.  4290.15  Leveraged and Non-leveraged Rural Business Investment 
Companies.

    The regulations in this part apply to rural business investment 
companies (RBICs) that seek leverage and to RBICs that do not seek 
leverage. The provisions of subparts A through N of this part apply to 
Leveraged RBICs and, except as indicated or as otherwise modified by 
subpart O of this part, to Non-leveraged RBICs. The provisions in 
subpart O of this part apply to Non-leveraged RBICs and, in addition, 
modify certain provisions in subparts A through N of this part as they 
apply to Non-leveraged RBICs.

Subpart B--Definition of Terms Used in Part 4290

0
5. Section 4290.50 is amended by:
0
a. Revising the definitions of Community Development Finance, 
Debenture, Includible Non-Cash Gains, Loans and Investments, Retained 
Earnings Available for Distribution, Rural Area, Secretary, State, and 
Undistributed Net Realized Earnings;
0
b. Revising paragraph (1)(i) of the definition of Institutional 
Investor; and
0
b. Adding definitions of Leveraged RBIC and Non-leveraged RBIC in 
alphabetical order.
    The revisions and additions read as follows:


Sec.  4290.50  Definition of terms.

* * * * *
    Community Development Finance means debt securities or equity-type 
investments in Rural Areas.
* * * * *
    Debenture means a debt obligation issued by RBICs pursuant to 
section 384E of the Act and held or guaranteed by the Secretary. A 
Debenture may be prepaid at any time without penalty.
* * * * *
    Includible Non-Cash Gains means those non-cash gains (as reported 
on SBA Form 468 or other USDA-approved form(s)) that are realized in 
the form of Publicly Traded and Marketable securities or investment 
grade debt instruments. For purposes of this definition, investment 
grade debt instruments means those instruments that are rated ``BBB'' 
or ``Baa'', or better, by Standard & Poor's Corporation or Moody's 
Investors Service, respectively. Non-rated debt may be considered to be 
investment grade if a RBIC obtains a written opinion from an investment 
banking firm acceptable to the Secretary stating that the non-rated 
debt instrument is equivalent in risk to the issuer's investment grade 
debt.
    Institutional Investor * * *
    (1) * * *
    (i) A State or National bank, Farm Credit System Institution, trust 
company, savings bank, or savings and loan association, including an 
investment pool created entirely by such bank or savings association, 
the deposits of which are insured under the Federal Deposit Insurance 
Act.
* * * * *
    Leveraged RBIC means a RBIC that received financial assistance 
under this part.
* * * * *
    Loans and Investments means Portfolio securities, assets acquired 
in liquidation of Portfolio securities, operating Enterprises acquired, 
and notes and other securities received, as set forth in the Statement 
of Financial Position on SBA Form 468 or other USDA-approved form(s).
* * * * *
    Non-leveraged RBIC means a RBIC that has not received financial 
assistance under this part.
* * * * *
    Retained Earnings Available for Distribution means Undistributed 
Net Realized Earnings less any Unrealized Depreciation on Loans and 
Investments (as reported on SBA Form 468 or other USDA-approved 
form(s)), and represents the amount that a RBIC may distribute to 
investors as a profit Distribution, or transfer to Private Capital.
    Rural Area means any area of a State not in a city or town that has 
a population of more than 50,000 inhabitants, according to the latest 
decennial census of the United States, 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 USDA 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

[[Page 80222]]

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 Rural Business-Cooperative Service Administrator of 
USDA on behalf of the Under Secretary. The petition shall document how 
the area meets the requirements of paragraph (6)(i)(A) or (B) of this 
definition 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.
* * * * *
    Secretary means the Secretary of Agriculture or his or her 
designee.
* * * * *
    State means each of the 50 states of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, Guam, the U.S. 
Virgin Islands, American Samoa, the Commonwealth of the Northern 
Mariana Islands, the Trust Territory of the Pacific Islands, and the 
Federated States of Micronesia.
* * * * *
    Undistributed Net Realized Earnings means Undistributed Realized 
Earnings less Non-cash Gains/Income, each as reported on SBA Form 468 
or other USDA-approved form(s).
* * * * *

Subpart C--Qualifications for the RBIC Program

0
6. Section 4290.110 is revised to read as follows:


Sec.  4290.110  Qualified management.

    An Applicant must show, to the satisfaction of the Secretary, that 
its current or proposed management team is qualified and has the 
knowledge, experience, and capability in Community Development Finance 
or Relevant Venture Capital Finance, necessary for investing in the 
types of Enterprises contemplated by the Act, regulations in this part, 
and its business plan. In determining whether an Applicant's current or 
proposed management team has sufficient qualifications, the Secretary 
will consider information provided by the Applicant and third parties 
concerning the background, capability, education, training and 
reputation (and any other managerial aspect identified by the USDA in a 
Federal Register notice) of its general partners, managers, officers, 
key personnel, and investment committee and governing board members. 
The Applicant must designate at least one individual as the official 
responsible for contact with the Secretary.

0
7. Section 4290.200 is revised to read as follows:


Sec.  4290.200  Adequate capital for RBICs.

    You must meet the requirements of Sec. Sec.  4290.210 through 
4290.230 in order to qualify as a RBIC.

0
8. Section 4290.210 is amended by revising paragraph (a) and adding a 
new paragraph (c) to read as follows:


Sec.  4290.210  Minimum capital requirements for RBICs.

    (a) General Rule. Unless otherwise specified in a Federal Register 
notice, you must have Regulatory Capital of at least $10,000,000, or 
such lesser amount (but not less than $5,000,000) and Leverageable 
Capital of at least $500,000, to become a RBIC.
* * * * *
    (c) Time frame. Each RBIC shall have a period of 2 years to meet 
the capital requirements set forth in this section.

Subpart D--Application and Approval Process for RBIC Licensing

0
9. Section 4290.300(b) is revised to read as follows:


Sec.  4290.300  When and how to apply for a RBIC license.

* * * * *
    (b) Application form. An Applicant must apply for a RBIC license 
using an appropriate application packet provided by the Secretary. Upon 
receipt of a completed application packet, the Secretary may request 
clarifying or technical information on the materials submitted as part 
of the application.

0
10. Section 4290.330 is revised to read as follows:


Sec.  4290.330  Grant and guarantee issuance fee.

    The Applicant must pay to the Secretary an issuance fee for each 
grant or debenture guarantee of $500. If both a grant and debenture 
guarantee are issued for the same RBIC, the issuance fee for both is 
$500. An Applicant must submit this fee in advance, at the time of 
application submission.

Subpart G--Managing the Operations of a RBIC

0
11. Section 4290.503 is amended by revising paragraphs (a) and (e)(2) 
to read as follows:


Sec.  4290.503  RBIC's adoption of an approved valuation policy.

    (a) Valuation guidelines. You must prepare, document and report the 
valuations of your Loans and Investments in accordance with the 
Valuation Guidelines for SBICs issued by SBA. These guidelines may be 
obtained from SBA's Investment Division or at http://www.sba.gov/sites/default/files/files/inv_valuation.pdf.
* * * * *
    (e) * * *
    (2) The independent public accountant's report on your audited 
annual financial statements (SBA Form 468 or other USDA-approved 
form(s)) must include a statement that your valuations were prepared in 
accordance with your approved valuation policy.

0
12. Section 4290.504 is amended by revising paragraph (a) to read as 
follows:


Sec.  4290.504  Equipment of USDA or SBA officials.

    (a) Computer capability. You must have a personal computer with 
access to the Internet and be able to use this equipment to prepare 
reports and transmit such reports to the Secretary. In addition, you 
must have the capability to send and receive electronic mail.
* * * * *

0
13. Section 4290.509 is amended by revising paragraph (a) introductory 
text to read as follows:


Sec.  4290.509  Employment of USDA or SBA officials.

    (a) Without the Secretary's prior written approval, for a period of 
two

[[Page 80223]]

years after the date of your most recent issuance of Leverage or after 
the receipt of any assistance as defined in paragraph (b) of this 
section, whichever is later, you are not permitted to employ, offer 
employment to, or retain for professional services, any person who:
* * * * *

0
14. Section 4290.550 is amended by revising paragraphs (a), (b), (c), 
and (d)(2) to read as follows:


Sec.  4290.550  Prior approval of secured third-party debt of RBICs.

    (a) Definition. For the purposes of this section, ``secured third-
party debt'' means any debt that is secured by any of your assets and 
not guaranteed by the Secretary, including secured guarantees and other 
contingent obligations that you voluntarily assume and secured lines of 
credit.
    (b) General rule. You must get the Secretary's written approval 
before you incur any secured third-party debt or refinance any debt 
with secured third-party debt, including any renewal of a secured line 
of credit, increase in the maximum amount available under a secured 
line of credit, or expansion of the scope of a security interest or 
lien. For purposes of this paragraph (b), ``expansion of the scope of a 
security interest or lien'' does not include the substitution of one 
asset or group of assets for another, provided the asset values (as 
reported on your most recent annual SBA Form 468 or other USDA-approved 
form(s)) are comparable.
    (c) Conditions for approval. As a condition of granting its 
approval under this section, the Secretary may impose such restrictions 
or limitations as he or she deems appropriate, taking into account your 
historical performance, current financial position, proposed terms of 
the secured debt and amount of aggregate debt you will have outstanding 
(including Leverage). The Secretary will not favorably consider any 
requests for approval which include a blanket lien on all your assets, 
or a security interest in your investor commitments in excess of 125 
percent of the proposed borrowing.
    (d) * * *
    (2) The security interest in your assets is limited to either those 
assets being acquired with the borrowed funds or an asset coverage 
ratio of no more than 2:1; and
* * * * *

Subpart H--Recordkeeping, Reporting, and Examination Requirements 
for RBICs

0
15. Section 4290.600 is amended by revising paragraphs (a) and (d) to 
read as follows:


Sec.  4290.600  General requirement for RBIC to maintain and preserve 
records.

    (a) Maintaining your accounting records. You must establish and 
maintain your accounting records using SBA's standard chart of accounts 
for SBICs, unless the Secretary approves otherwise. You may obtain this 
chart of accounts from SBA or at http://www.sba.gov/sites/default/files/files/inv_charts_of_accounts.pdf.
* * * * *
    (d) Additional requirement. You must comply with the recordkeeping 
and record retention requirements set forth in Circular A-110 of the 
Office of Management and Budget. (OMB Circulars are available from the 
addresses listed in 5 CFR 1310.3 and at http://www.whitehouse.gov/omb/circulars_default.)

0
16. Section 4290.610 is amended by revising paragraph (b) to read as 
follows:


Sec.  4290.610  Required certifications for Loans and Investments.

* * * * *
    (b) For each Financing made to a Small Business Concern, Size 
Status Declaration (SBA Form 480 or other USDA-approved form(s)), 
executed both by you and by the Portfolio Concern certifying that the 
concern is a Small Business Concern. For securities purchased from an 
underwriter in a public offering, you may substitute a prospectus 
showing that the concern is a Small Business Concern.
* * * * *

0
17. Section 4290.630 is amended by revising paragraphs (a) introductory 
text, (a)(1), (b) through (e), and (f) introductory text to read as 
follows:


Sec.  4290.630  Requirement for RBICs to file financial statements and 
supplementary information with the Secretary.

    (a) Annual filing. For each fiscal year, you must submit financial 
statements and supplementary information prepared on SBA Form 468 or 
other USDA-approved form(s). You must file SBA Form 468 (or other USDA-
approved form(s)) on or before the last day of the third month 
following the end of your fiscal year, except for the information 
required under paragraphs (e) and (f) of this section, which must be 
filed on or before the last day of the fifth month following the end of 
your fiscal year.
    (1) Audit of annual filing form. An independent public accountant 
acceptable to the Secretary must audit the annual form submitted under 
paragraph (a) of this section.
* * * * *
    (b) Interim filings. When requested by the Secretary, you must file 
interim reports on SBA Form 468 or other USDA-approved form(s). The 
Secretary may require you to file the entire form or only certain 
statements and schedules. You must file such reports on or before the 
last day of the month following the end of the reporting period. When 
you submit a request for a draw under a Leverage commitment, you must 
also comply with any applicable filing requirements set forth in Sec.  
4290.1220.
    (c) Standards for preparation. You must prepare SBA Form 468 or 
other USDA-approved form(s) in accordance with SBA's Accounting 
Standards and Financial Reporting Requirements for SBICs, which you may 
obtain from SBA or at http://www.sba.gov/content/accounting-standards-sbics.
    (d) Where to file. Unless otherwise identified in a notice 
published in the Federal Register, submit all filings of forms under 
this section to the Investment Division of SBA.
    (e) Reporting of economic development impact information for each 
Financing. Your annual filing of SBA Form 468 or other USDA-approved 
form(s) must include an assessment of the economic development impact 
of each Financing. This assessment must specify the fulltime equivalent 
jobs created, the impact of the Financing on the revenues and profits 
of the business and on taxes paid by the business and its employees, 
and a listing of the number and percentage of employees who reside in 
Rural Areas.
    (f) Reporting of economic development information for certain 
Financings. For each Rural Business Concern Investment and each Smaller 
Enterprise Investment, your SBA Form 468 or other USDA-approved form(s) 
must include an assessment of each such Financing with respect to:
* * * * *

0
18. Section 4290.640 is revised to read as follows:


Sec.  4290.640  Requirement to file portfolio financing reports with 
the Secretary.

    For each Financing you make (excluding guarantees), you must submit 
a Portfolio Financing Report on SBA Form 1031 or other USDA-approved 
form(s) within 30 days of the closing date.

[[Page 80224]]


0
19. Section 4290.692 is amended by revising paragraph (d) to read as 
follows:


Sec.  4290.692  Examination Fees.

* * * * *
    (d) Examination delay fee. If, in the sole discretion of the 
Secretary, the time required to complete your examination is delayed 
due to your lack of cooperation or the condition of your records, the 
Secretary may assess an additional examination fee of up to $500 per 
day.

Subpart I--Financing of Enterprises by RBICs

0
20. Section 4290.720 is amended by revising paragraphs (d)(1) and (i) 
to read as follows:


Sec.  4290.720  Enterprises that may be ineligible for Financing.

* * * * *
    (d) * * *
    (1) The assets of the Enterprise are to be reduced or consumed, 
generally without replacement, as the life of the Enterprise 
progresses, and the nature of the Enterprise requires that a stream of 
cash payments be made to the Enterprise's financing sources, on a basis 
associated with the continuing sale of assets. Examples include real 
estate development projects and oil and gas wells; or
* * * * *
    (i) Entities ineligible for Farm Credit System Assistance. If one 
or more Farm Credit System Institutions or their Affiliates owns more 
than 25 percent of the ownership interests of a Rural Business 
Investment Company, either alone or in conjunction with other Farm 
Credit System Institutions (or affiliates), the Rural Business 
Investment Company may not provide Financing to any entity that is not 
otherwise eligible to receive Financing from a Farm Credit System 
Institution under the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.).
* * * * *

0
21. Section 4290.740 is amended by revising paragraphs (a) introductory 
text and (a)(2), adding a new paragraph (a)(3), and revising paragraph 
(b) to read as follows:


Sec.  4290.740  Portfolio diversification (``overline'' limitation).

    (a) Without the Secretary's prior written approval, you may provide 
Financing or a Commitment to an Enterprise only if the resulting amount 
of your aggregate outstanding Financings and Commitments to that 
Enterprise and its Affiliates does not exceed 10 percent of the sum of:
* * * * *
    (2) Any permitted Distribution(s) you made during the five years 
preceding the date of the Financing or Commitment which reduced your 
Regulatory Capital; plus
    (3) The total amount of Leverage provided to the Rural Business 
Investment Company by the Secretary since it was licensed under Sec.  
4290.390.
    (b) For the purposes of paragraph (a) of this section, you must 
measure each outstanding Financing at its original cost plus any amount 
of the Financing that was previously written off.

0
22. Section 4290.815 is amended by revising paragraph (b) introductory 
text to read as follows:


Sec.  4290.815  Financings in the form of Debt Securities.

* * * * *
    (b) Restriction of options obtained by RBIC's management and 
employees. Your employees, officers, directors, general partners, or 
managing members, or the general partners or managing members of your 
Investment Advisor/Manager, may obtain options in a Portfolio Concern 
only if:
* * * * *

Subpart J--Financial Assistance for RBICs (Leverage)

0
23. Section 4290.1220 is amended by revising paragraph (a) to read as 
follows:


Sec.  4290.1220  Requirement for RBIC to file financial statements at 
the time of request for a draw.

    (a) If you submit a request for a draw against your Leverage 
commitment more than 90 days following your submission of an annual SBA 
Form 468 or a SBA Form 468 (Short Form) or other USDA-approved form(s), 
you must:
    (1) Give the Secretary a financial statement on Form 468 (Short 
Form) or other USDA-approved form(s), and
    (2) File a statement of no material adverse change in your 
financial condition since your last filing of SBA Form 468 or other 
USDA-approved form(s).
* * * * *

0
24. Section 4290.1230 is amended by revising paragraphs (d)(1), (d)(2), 
and (e)(1) to read as follows:


Sec.  4290.1230  Draw-downs by RBIC under Leverage commitment.

* * * * *
    (d) * * *
    (1) A statement certifying that there has been no material adverse 
change in your financial condition since your last filing of SBA Form 
468 or other USDA-approved form(s) (see also Sec.  4290.1220 for filing 
requirements).
    (2) If your request is submitted more than 30 days following the 
end of your fiscal year, but before you have submitted your annual 
filing of SBA Form 468 or other USDA-approved form(s) in accordance 
with Sec.  4290.630(a), a preliminary unaudited annual financial 
statement on SBA Form 468 (Short Form) or other USDA-approved form(s).
* * * * *
    (e) * * *
    (1) Within 30 calendar days after the actual closing date of each 
Financing funded with the proceeds of your draw, you must file an SBA 
Form 1031 or other USDA-approved form(s) confirming the closing of the 
transaction.
* * * * *

0
25. Section 4290.1600 is amended by revising paragraph (d) to read as 
follows:


Sec.  4290.1600  Secretary's authority to issue and guarantee Trust 
Certificates.

* * * * *
    (d) Formation of a Pool or Trust holding Leverage Securities. The 
Secretary shall approve the formation of each Pool or Trust. The 
Secretary may, in his or her discretion, establish the size of the 
Pools and their composition, the interest rate on the TCs issued 
against Trusts or Pools, discounts, premiums and other charges made in 
connection with the Pools, Trusts, and TCs, and any other 
characteristics of a Pool or Trust he or she deems appropriate. 
Notwithstanding Sec.  4290.1130(c), any agent of the Secretary may 
collect a fee for the functions described in 7 U.S.C. 2009cc-5(e)(2) 
that does not exceed $500.

Subpart K--RBIC's Noncompliance With Terms of Leverage

0
26. Section 4290.1810 is amended by revising paragraph (a) to read as 
follows:


Sec.  4290.1810  Events of default and the Secretary's remedies for 
RBICs noncompliance with terms of Debentures.

    (a) Applicability of this section. Upon acceptance of a license to 
operate as an RBIC, you automatically agree to the terms, conditions 
and remedies in this section, as in effect at the time of issuance of 
the license and as fully set forth in all documents relating to the 
license, including, without limitation, the Participation Agreement and 
Debentures.
* * * * *

[[Page 80225]]


0
27. Section 4290.1840 is amended by revising paragraph (b)(1) to read 
as follows:


Sec.  4290.1840  Computation of RBIC's Capital Impairment Percentage.

* * * * *
    (b) * * *
    (1) The sum of Undistributed Net Realized Earnings, as reported on 
SBA Form 468 or other USDA-approved form(s) and Includible Non-Cash 
Gains.
* * * * *
    28. A new subpart O is added to read as follows:
Subpart O--Additional Requirements for Non-Leveraged Licensees and 
Exceptions to Regulations
Sec.
4290.3000 Non-leveraged RBICs--General.
4290.3001-4290.3002 [Reserved]
4290.3003 Responsibility for implementing Non-leveraged RBICs.
4290.3004 [Reserved]
4290.3005 Qualifications for the Non-leveraged RBIC Program.
4290.3006-4290.3009 [Reserved]
4290.3010 Application and Approval Process for RBIC licensing 
without Leverage.
4290.3011-4290.3014 [Reserved]
4290.3015 Evaluation and selection of Non-leveraged RBICs.
4290.3016-4290.3019 [Reserved]
4290.3020 Changes in Ownership, Structure, or Control.
4290.3021-4290.3024 [Reserved]
4290.3025 Managing the Operations of a RBIC.
4290.3026-4290.3029 [Reserved]
4290.3030 Financing of Enterprises by RBICs.
4290.3031-4290.3034 [Reserved]
4290.3035 Recordkeeping, Reporting, and Examination Requirements for 
RBICs.
4290.3036-4290.3039 [Reserved]
4290.3040 Financial Assistance for RBICs.
4290.3041 Events of default and the Secretary's remedies for RBIC's 
noncompliance with terms of Debenture.
4290.3042-4290.3044 [Reserved]
4290.3045 Computation of RBIC's Capital Impairment.
4290.3046-4290.3049 [Reserved]
4290.3050 Operational Assistance Grants for RBICs.
4290.3051-4290.3099 [Reserved]

Subpart O--Additional Requirements for Non-Leveraged Licensees and 
Exceptions to Regulations


Sec.  4290.3000  Non-leveraged RBICs--General.

    This subpart identifies provisions specific to RBICs seeking a non-
leveraged license, including exceptions and additions to provisions 
associated with subparts A through N of this part.


Sec. Sec.  4290.3001-4290.3002  [Reserved]


Sec.  4290.3003  Responsibility for implementing Non-leveraged RBICs.

    Section 4290.45 does not apply to Non-leveraged RBICs. Instead, for 
the purposes of this part as it applies to Non-leveraged RBICs, all 
authorities and responsibilities assigned to the Secretary under this 
part shall be carried out by the Secretary, and none shall be delegated 
to the U.S. Small Business Administration (SBA) or the Administrator. 
Thus, when applying subparts A through N of this part to Non-leveraged 
RBICs, all references to the Small Business Association (SBA) or 
Administrator on behalf of USDA shall be read as the Secretary. All 
forms shall be submitted to USDA or its designee.


Sec.  4290.3004  [Reserved]


Sec.  4290.3005  Qualifications for the Non-leveraged RBIC Program.

    (a) Business form. In addition to complying with the applicable 
provisions of Sec.  4290.100 not otherwise modified by this section, 
paragraphs (a)(1) through (a)(4) of this section apply.
    (1) For RBICs applying for non-leveraged status, the types of 
investors eligible to invest in a RBIC must have been approved by the 
Secretary. Investors seeking approval must submit a request to the 
Secretary with sufficient documentation to support their request. The 
USDA will announce such approved categories and types of investors in a 
public notice published in the Federal Register from time to time. 
Subsequent notices that modify the types of investors eligible to 
invest in a RBIC will not be applied retroactively.
    (2) In lieu of complying with Sec.  4290.100(d)(1)(i), you must 
have a minimum duration of 10 years. After 10 years, the Partnership 
RBIC may be terminated by a vote of your partners.
    (3) In lieu of complying with Sec.  4290.100(d)(2), if you are a 
LLC RBIC, you must have a minimum duration of 10 years. After 10 years, 
the LLC RBIC may be terminated by a vote of your members.
    (4) In lieu of complying with Sec.  4290.100(d)(3), if you are a 
Corporate RBIC, you must have a duration of not less than 30 years 
unless earlier dissolved by the shareholders.
    (b) Approval of initial Management Expenses. Section 4290.140 does 
not apply to Non-leveraged RBICs. However, the Secretary will provide a 
cap on these expenses in each Federal Register notice soliciting 
applications for Non-leveraged RBICs.
    (c) Management and ownership diversity requirements. A Non-
leveraged RBIC is subject to the provisions of Sec.  4290.150 unless it 
is exempted from these provisions by the Secretary. Exemptions will 
only be granted when the applicant establishes, to the satisfaction of 
the Secretary, that granting the exemption will not unduly impair the 
integrity and soundness of the Non-leveraged RBIC.
    (d) Special rules for Partnership RBICs and LLC RBICs. Paragraph 
(c) of Sec.  4290.160 does not apply to Non-leveraged RBICs.


Sec. Sec.  4290.3006-4290.3009  [Reserved]


Sec.  4290.3010  Application and Approval Process for RBIC licensing 
without Leverage.

    (a) The provisions of Sec.  4290.300 notwithstanding, the Secretary 
will accept, at any time, applications for consideration as a Non-
leveraged RBIC. The number of applications that the Agency will receive 
each year, and any fees and conditions, will be announced annually in a 
Federal Register notice.
    (b) The provisions specified in Sec.  4290.340(d) do not apply to 
this subpart.
    (c) The provisions specified in Sec.  4290.370(m) do not apply to 
this subpart.


Sec. Sec.  4290.3011-4290.3014  [Reserved]


Sec.  4290.3015  Evaluation and selection of Non-leveraged RBICs.

    (a) General. Notwithstanding any other provision in this part, when 
selecting applications for non-leveraged status, the Secretary may 
select one or more applications, or none, for further consideration 
based on the evaluation criteria of this part.
    (b) Eligibility and completeness. In addition to the requirements 
specified in Sec.  4290.350, an Applicant under this subpart must 
complete a written application that includes information not otherwise 
exempted by the Secretary, in his or her sole discretion. The Secretary 
may, on his or her own initiative, exempt material from a Non-leveraged 
RBIC application where the Secretary determines it impedes an expedited 
process without a commensurate benefit to the program. To the extent 
that the Secretary's exemption applies to the entire program, an 
announcement of the exemption will be published in the Federal 
Register. The Secretary shall make a decision as to licensing an 
Applicant after the receipt of a complete application and will enter 
into a Participation Agreement with the RBIC if approved.
    (c) Effect of a RBIC license. Paragraphs (d)(2) and (d)(3) of

[[Page 80226]]

Sec.  4290.390 do not apply to Non-leveraged RBICs.


Sec. Sec.  4290.3016-4290.3019  [Reserved]


Sec.  4290.3020  Changes in Ownership, Structure, or Control.

    Paragraph (b) in Sec.  4290.440 does not apply to Non-leveraged 
RBICs.


Sec. Sec.  4290.3021-4290.3024  [Reserved]


Sec.  4290.3025  Managing the Operations of a RBIC.

    (a) Nonperformance. In addition to the provisions specified in 
Sec.  4290.507, failure of an approved Non-leveraged RBIC to maintain 
sound investment practice, as determined by the Secretary, may result 
in loss of approval for participating in this program.
    (b) Employment of USDA or SBA officials. Paragraph (a)(2) of Sec.  
4290.509 does not apply to Non-leveraged RBICs.
    (c) Approval of RBIC's Investment Adviser/Manager. In addition to 
complying with Sec.  4290.510, a Non-leveraged RBIC must notify the 
Secretary of the Management Expenses to be incurred under such 
contract, or of any subsequent material changes in such Management 
Expenses, within 30 days of execution.
    (d) Management Expenses of a RBIC. When complying with Sec.  
4290.520, Non-leveraged RBICs do not need prior approval of initial 
Management Expenses and any increases in those expenses.
    (e) Restrictions on investments of idle funds by RBICs. The 
provisions of Sec.  4290.530 apply to Non-leveraged RBICs only when the 
Non-leveraged RBIC engages in activities not contemplated by the Act.
    (f) Prior approval of secured third-party debt of RBICs. The 
provisions of Sec.  4290.550 do not apply to Non-leveraged RBICs.
    (g) Voluntary decrease in Regulatory Capital. When complying with 
Sec.  4290.585, Non-leveraged RBICs do not need to obtain prior 
approval for decreases in Regulatory Capital of more than 2 percent 
(but not below the minimum required under this Act or these 
regulations). However, Non-leveraged RBICs must report the reduction to 
the Secretary within 30 days.


Sec. Sec.  4290.3026-4290.3029  [Reserved]


Sec.  4290.3030  Financing of Enterprises by RBICs.

    (a) Non-compliance with this section. The last sentence of Sec.  
4290.700(e) does not apply to Non-leveraged RBICs.
    (b) Enterprises that may be ineligible for Financing. The 
provisions associated with real estate enterprises found in Sec.  
4290.720(c) apply to Non-leveraged RBICs unless the Non-leveraged RBIC 
requests, and has received, an irrevocable exemption from the Secretary 
in accordance with Sec.  4290.1920.
    (c) Farmland purchases. The provisions associated with farmland 
purchases found in Sec.  4290.720(e) apply to Non-leveraged RBICs 
unless the Non-leveraged RBIC requests, and has received, an 
irrevocable exemption from the Secretary in accordance with Sec.  
4290.1920.
    (d) Purchasing securities from an underwriter or other third party. 
Non-leveraged RBICs are exempt from the recordkeeping requirements and 
fee limitations in Sec.  4290.825(b) and (c), respectively, for 
securities purchased through or from an underwriter.
    (e) Assets acquired in liquidation of Portfolio securities. The 
provisions of Sec.  4290.880 do not apply to Non-leveraged RBICs.


Sec. Sec.  4290.3031-4290.3034  [Reserved]


Sec.  4290.3035  Recordkeeping, Reporting, and Examination Requirements 
for RBICs.

    Except for Sec.  4290.600(d), Subpart H, Recordkeeping, Reporting, 
and Examination Requirements for RBICs, of this part applies to Non-
leveraged RBICs.


Sec. Sec.  4290.3036-4290.3039  [Reserved]


Sec.  4290.3040  Financial Assistance for RBICs.

    Subpart J, Financial Assistance for RBICs (Leveraged), of this part 
does not apply to Non-leveraged RBICs.


Sec.  4290.3041  Events of default and the Secretary's remedies for 
RBIC's noncompliance with terms of Debenture.

    In addition to complying with the provisions of Sec.  4290.1810, a 
RBIC's failure to comply with the terms of this part may result in the 
Secretary revoking the Non-leveraged RBIC's license issued under this 
part.


Sec. Sec.  4290.3042-4290.3044  [Reserved]


Sec.  4290.3045  Computation of RBIC's Capital Impairment.

    The provisions specified in Sec. Sec.  4290.1830 and 4290.1840 do 
not apply to Non-leveraged RBICs.


Sec. Sec.  4290.3046-4290.3049  [Reserved]


Sec.  4290.3050  Operational Assistance Grants for RBICs.

    Subpart N, Requirements for Operational Assistance Grant to RBICs, 
of this part does not apply to Non-leveraged RBICs. All other 
references to Operational Assistance in this part do not apply to Non-
leveraged RBICs.


Sec. Sec.  4290.3051-4290.3099  [Reserved]

    Dated: December 15, 2011.
Dallas Tonsager,
Under Secretary, Rural Development.

    Dated: December 15, 2011.
Bruce Nelson,
Administrator, Farm Service Agency.
[FR Doc. 2011-32570 Filed 12-22-11; 8:45 am]
BILLING CODE 3410-XY-P