[Federal Register Volume 80, Number 121 (Wednesday, June 24, 2015)]
[Rules and Regulations]
[Pages 36410-36455]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-14989]



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Vol. 80

Wednesday,

No. 121

June 24, 2015

Part II





Department of Agriculture





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Rural Business-Cooperative Service





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Rural Utilities Service





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7 CFR Parts 4279 and 4287





Biorefinery, Renewable Chemical, and Biobased Product Manufacturing 
Assistance Program; Final Rule

  Federal Register / Vol. 80 , No. 121 / Wednesday, June 24, 2015 / 
Rules and Regulations  

[[Page 36410]]


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DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Parts 4279 and 4287

RIN 0570-AA73


Biorefinery, Renewable Chemical, and Biobased Product 
Manufacturing Assistance Program

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

ACTION: Interim final rule.

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SUMMARY: The Rural Business-Cooperative Service (Agency) is publishing 
this interim final rule for the Biorefinery, Renewable Chemical, and 
Biobased Product Manufacturing Assistance Program (the Program), 
formerly the Biorefinery Assistance Program, incorporating changes 
required in the Agricultural Act of 2014 (2014 Farm Bill) and 
addressing comments received on the interim final rule published on 
February 14, 2011 (76 FR 8404). This interim final rule establishes 
provisions for the loan guarantees available for Biorefineries to 
support the production of Advanced Biofuels and Renewable Chemicals and 
for Biobased Product Manufacturing facilities.

DATES: This interim rule is effective August 24, 2015. Comments on the 
rule and the information collection under the Paperwork Reduction Act 
of 1995 must be received on or before August 24, 2015.

ADDRESSES: Submit your comments on 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: Todd Hubbell, Energy Branch, Rural 
Business-Cooperative Service, U.S. Department of Agriculture, 1400 
Independence Avenue SW., Stop 3225, Washington, DC 20250-3201; 
telephone (202) 720-0410.

SUPPLEMENTARY INFORMATION: 

I. Executive Summary

    The Food, Conversation, and Energy Act of 2008 (Pub. L. 110-246), 
otherwise known as the 2008 Farm Bill, established the Biorefinery 
Assistance Program (the Program) under Title IX, Section 9003, for 
making loan guarantees to fund the development, construction, and 
Retrofitting of Commercial-Scale Biorefineries using Eligible 
Technology. The 2008 Farm Bill defined Eligible Technologies as: 
Technology that is being adopted in a viable Commercial-Scale operation 
of a Biorefinery that produces an Advanced Biofuel; and technology that 
has been demonstrated to have technical and economic potential for 
commercial application in a Biorefinery that produces an Advanced 
Biofuel.
    The Program's authority is continued in the Agricultural Act of 
2014 (2014 Farm Bill) (Pub. L. 113-79), with several specific changes: 
(1) Renames the Program as the Biorefinery, Renewable Chemical, and 
Biobased Product Manufacturing Assistance; (2) Revises the purpose 
statement for the Program to include Renewable Chemicals and Biobased 
Product Manufacturing; (3) Expands the Program to include Biobased 
Product Manufacturing facilities; (4) Adds definitions for ``Renewable 
Chemicals'' and ``Biobased Product Manufacturing''; and (5) Ensures 
diversity in the types of Projects approved.
    Eligible applicants for the Program are as follows: Individuals; 
entities; Indian Tribes; units of State or Local Government; 
corporations; Farm Cooperatives; Farmer Cooperative Organizations; 
associations of Agricultural Producers; National Laboratories; 
Institutions of Higher Education; rural electric cooperatives; public 
power entities; and consortia of any of the foregoing entities.
    The 2014 Farm Bill provides the Program with a total budget 
authority of $200 million in mandatory funding over three years, with 
discretionary funding totaling $375 million over five years ($75 
million per year). This level of funding is less than provided under 
the 2008 Farm Bill, which had a total budget authority of $320 in 
mandatory funding, with discretionary funding totaling $750 million 
over five years ($150 million per year).

Purpose of the Regulatory Action

    This rule revises 7 CFR part 4279, subpart C and 7 CFR part 4287, 
subpart D to implement the provisions contained in the 2014 Farm Bill, 
modifies the Program to incorporate administrative improvements based 
on Agency experience in implementing the Program, addresses comments 
received on the interim final rule, published in the Federal Register 
on February 14, 2011, and incorporates the guaranteed loan provisions 
of the Agency's Business and Industry (B&I) Guaranteed Loan program to 
make the rule a ``stand alone'' rule.

Summary of the Major Changes

    The major changes being implemented by this rulemaking are:
     Revised the purpose and scope section by adding Renewable 
Chemicals and Biobased Product Manufacturing;
     Adding the ability to fund Biobased Product Manufacturing 
facilities;
     Removing the requirement that the majority of the 
Biorefinery production must be an Advanced Biofuel in order to be 
eligible for Program assistance;
     Supplementing the Program to include a ``project-finance 
framework;''
     Implementing a two-phase application process;
     Overhauling the scoring of applications; and
     Limiting Interest accrual to 90 days, in most instances, 
to determining what the guarantee will cover and what can be included 
in a loss claim.

Costs and Benefits

    The Agency estimates that approximately 95 applicants will submit 
Phase 1 applications. The burden to these applicants under the new two-
phase application process is estimated to be approximately 700 hours 
per application. The Agency estimates that each applicant who receives 
a loan guarantee would require an additional 252 hours for reporting 
and other servicing actions.
    The benefits associated with the Program under the subsequent 
interim rule are, for the most part, the same as those that accrue 
under the baseline Program. Direct beneficiaries of the Program 
continue to be those applicants who receive a Section 9003 loan 
guarantee, but now include owners and operators of Biorefineries whose 
primary product is a Renewable Chemical and owners and operators of 
Biobased Product Manufacturing facilities. Indirect beneficiaries of 
the Program continue to include technology providers of the systems 
used in advancing these facilities, feedstock

[[Page 36411]]

suppliers, producer associations and cooperatives, and Lenders.
    Expanding the Program to include Renewable Chemicals and Biobased 
Product Manufacturing will further potential positive environmental 
impacts associated with replacing petroleum-based feedstock with 
renewable biomass feedstock.
    The Agency expects the changes (described later in this Notice) to 
make the Program more attractive to larger, more sophisticated Lenders 
who are under more regulatory scrutiny than the Lenders that have 
historically participated in the Agency's guaranteed loan programs. 
Their participation is necessary due to the size of the Projects funded 
under the Program. Changes are also made that clarify and streamline 
Agency application requirements, which will aid Lenders and Borrowers 
in putting together materials required as part of the application 
process.
    The Agency also expects the changes to the Program to result in a 
greater diversity of the types of Projects being funded, including 
Biobased Product Manufacturing facilities and Biorefineries whose 
primary product is a Renewable Chemical that had not been eligible for 
funding under the Program as authorized by the 2008 Farm Bill. The 
Agency further expects these changes to improve the financial 
feasibility of Biorefineries producing Advanced Biofuels and Renewable 
Chemicals because Renewable Chemicals typically are of higher value 
than Advanced Biofuels and have broader market opportunities.

II. Executive Orders/Acts

Executive Order 12866

    This interim final rule has been reviewed under Executive Order 
(EO) 12866 and has been determined to be ``economically significant'' 
by the OMB. 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 EO 12866. In this analysis, the Agency identifies 
alternatives considered, the distributional effects of the rule 
changes, the estimated costs of applying for and the potential benefits 
of receiving Section 9003 funding.
Alternatives Considered
    In the benefit-cost analysis, the Agency considered alternatives 
associated with three provisions--Renewable Chemicals, Biobased Product 
Manufacturing, and Project diversity.
    Renewable Chemicals. Under the baseline Program, a Biorefinery is 
required to primarily produce Advanced Biofuels in order to 
participate; that is, the majority of the Biorefinery's production must 
be an Advanced Biofuel. The 2014 Farm Bill provisions add ``Renewable 
Chemicals'' to the Program's title and its purpose statement, but do 
not address how Renewable Chemical facilities will be assisted. The 
Agency, therefore, had to consider how a facility producing Renewable 
Chemicals would be eligible for a Section 9003 loan guarantee.
    The Agency considered whether the 2014 Farm Bill would allow 
providing loan guarantees to facilities that produced Renewable 
Chemicals, but did not produce any Advanced Biofuel. The Agency also 
considered Congressional intent as articulated in the 2014 Farm Bill 
conference report, which would enable the Program to provide loan 
guarantees to a wide array of facilities.
    After consideration of the entire 2014 Farm Bill provisions, the 
Agency is removing the regulatory requirement that a Biorefinery 
primarily produce an Advanced Biofuel. In addition, the subsequent 
interim rule (this rule) requires that the Biorefinery produce at least 
some Advanced Biofuel, but it does not set a minimum production level 
of Advanced Biofuel, and does not require the Advanced Biofuel be sold 
as Biofuel. The primary effect of these changes is to allow a 
Biorefinery that primarily produces a Renewable Chemical to apply for a 
Section 9003 loan guarantee.
    Biobased Product Manufacturing. The 2014 Farm Bill added Biobased 
Product Manufacturing to the Program's title and purpose statement and 
provided for up to 15 percent of the mandatory funds for Fiscal Years 
2014 and 2015 to be used to support facilities producing Biobased 
Products for end use. To incorporate Biobased Product Manufacturing 
facilities into the Program, the Agency considered two approaches--(1) 
writing separate sections in the rule to address specific Project 
criteria and administrative requirements for Biobased Product 
Manufacturing provisions or (2) revising the rule to broadly apply to 
all types of projects eligible under the Program.
    Under the first approach, the Agency would develop criteria and 
other specific requirements for applications and write separate 
sections in the rule to address Biobased Product Manufacturing. This 
approach would require a large amount of duplication or cross 
referencing to the general rule. In addition, there is no statutory 
authorization for Biobased Product Manufacturing projects after 15% of 
the fiscal years 2014 and 2015 mandatory funding is expended on such 
projects. Thus, this approach would create provisions that would 
``sunset'' after a short period of time.
    Under the second approach, which the Agency is implementing, the 
Agency would revise the rule to apply as broadly as possible to all 
types of projects eligible under the Program, such as changing 
references from ``biorefinery'' to ``facility'' and to identify in an 
annual notice the priority scoring criteria that explicitly apply to 
Biobased Product Manufacturing facilities.
    Project diversity. The 2014 Farm Bill provisions require that there 
be a diversity of technologies, products, and approaches in the types 
of Projects approved under the Program. The Agency considered two 
approaches for addressing Project diversity--specific Project criteria 
and administrative priority points.
    Under the first approach, the Agency would identify one or more 
priority scoring criteria for specific technologies, products, and 
approaches that are under-represented in the Program portfolio and 
update the specific technologies, products, and approaches annually. 
The Agency determined that this approach would be more cumbersome and 
it could be difficult to identify new and emerging technologies, 
products, and approaches in advance of drafting and publishing criteria 
on an annual basis.
    Under the second approach, which the Agency is implementing, the 
Agency would include the authority for the Administrator to award 
additional discretionary points in the priority scoring and selection 
process. This approach provides greater flexibility than the first 
approach and allows the Agency to respond to changes in the 
applications and the industries as a whole. As implemented, the 
Administrator, at the Administrator's discretion, may award up to 10 
points to ensure as wide a range as possible of

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technologies, products, and approaches are assisted in the Program's 
portfolio.
Distributional Effects
    The subsequent interim rule affects the distribution of costs and 
benefits across eligible applicants. The subsequent interim rule 
increases costs to some of the applicants, but decreases the cost to 
many applicants (i.e., those applicants who are not invited to submit a 
Phase 2 application). On balance, the two-phase application process 
reduces the total cost of the Program to the public.
    While the types of benefits occurring as a result of the subsequent 
interim rule are not different from those that occur under the baseline 
Program, the benefits occur across a broader range of Projects 
(Renewable Chemicals and Biobased Product Manufacturing). The Agency 
also expects these changes to improve the financial feasibility of the 
Biorefineries supplying Renewable Chemicals and other Biobased Products 
to manufacturing facilities because Renewable Chemicals typically are 
of higher value than Advanced Biofuels.
    The inclusion of the Renewable Chemical and Biobased Product 
Manufacturing provisions also means that there may be a shift in the 
entities receiving the benefits--from Biorefineries that primarily 
produce Advanced Biofuels to those that produce primarily Renewable 
Chemicals and to facilities that manufacture Biobased Products into 
end-user products. The extent that such a shift occurs depends in part 
on the applications received and their merits.
    With regard to the distribution of benefits over time, the Program 
initially directly benefits those who are receiving loan guarantees for 
the construction and production of the Advanced Biofuels, Renewable 
Chemicals, and Biobased Products. The benefits of these products will 
be enjoyed by future generations to the extent that such Projects are 
successful in growing these businesses to the point where they become 
part of the long-term economy. While the subsequent interim rule does 
not directly change this type of distributional effect, the greater 
inclusion of Renewable Chemicals and the funding of Biobased Product 
Manufacturing can help ensure that these types of Projects and their 
products become part of the long-term economy.
Costs
    The Agency estimates that the burden to the public of applying for 
a Section 9003 loan guarantee under the new two-phase application 
process to be approximately 700 hours per application. The Agency 
estimates that each applicant who receives a loan guarantee would 
require an additional 252 hours for reporting and other servicing 
actions.
    Over the three years following the effective date of the subsequent 
interim rule, the Agency estimates that there will be approximately 95 
applicants submitting Phase 1 applications, of which 34 will be invited 
to submit a Phase 2 application. The number of applicants is based on 
(1) an assumption of full funding for the Program over the next three 
years, (2) the fact that we have received approximately three times 
more applications than we could fund, and (3) the number of expected 
applications for the first time from biorefineries whose primary output 
is a Renewable Chemical and from Biobased Product Manufacturing 
facilities based on inquiries from these sectors.
Benefits
    The benefits associated with the Program under the subsequent 
interim rule are, for the most part, the same as those that accrue 
under the baseline Program. Direct beneficiaries of the Program are 
those applicants who receive a Section 9003 loan guarantee, which can 
be up to $250 million (not to exceed 80 percent of total Eligible 
Project Costs). As a result of the 2014 Farm Bill, direct beneficiaries 
will now include owners and operators of Biorefineries whose primary 
product is a Renewable Chemical and owners and operators of Biobased 
Product Manufacturing facilities.
    Indirect beneficiaries of the Program include the technology 
providers of the system used in advancing these Biorefineries and 
Biobased Product Manufacturing facilities, Agriculture Producers and 
others who supply the feedstock used in these Biorefineries and 
facilities, producer associations and cooperatives (to the extent that 
applicants seek to partner with such entities), and Lenders.
    By relying on Renewable Biomass feedstock, these Projects have the 
ability to have a greater positive impact on the environment than 
similar products produced from petroleum-based feedstock. Expanding the 
Program to include Renewable Chemicals and Biobased Product 
Manufacturing will further these potential positive environmental 
impacts.
    Creating diversity in technologies, products, and approaches helps 
spread the potential for development of new and emerging technologies 
products, and approaches as broadly as possible thereby achieving a 
primary purpose of the Program--to assist in the development of new and 
emerging technologies.
Funding
    The 2014 Farm Bill provides $100 million of mandatory funding for 
the Program for Fiscal Year 2014 and $50 million of mandatory funding 
for each of Fiscal Years 2015 and 2016. Of the mandatory funding for 
Fiscal Years 2014 and 2015, the Secretary may use for the cost of loan 
guarantees not more than 15 percent to promote Biobased Product 
Manufacturing. The 2014 Farm Bill also enables Congress to approve an 
additional $75 million of discretionary funding for Fiscal Years 2014 
through 2018.

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 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.

National Environmental Policy Act

    The Program has been operating since 2009, initially under funding 
notices, but later under an interim final rule published on February 
14, 2011. The Program's regulations are found in 7 CFR part 4279, 
subpart C and 7 CFR part 4287, subpart D. Under this Program, the 
Agency conducts a National Environmental Policy Act (NEPA) review for 
each application received. To date, no significant environmental 
impacts have been reported, and Findings of No Significant Impact 
(FONSI) have been issued for each approved application. Taken 
collectively, the applications show no

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potential for significant adverse cumulative effects.
    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' Rural Development has determined 
that this action does not constitute a major Federal action 
significantly affecting the quality of the human environment, and in 
accordance with NEPA of 1969, 42 U.S.C. 4321 et seq., an Environmental 
Impact Statement is not required.

Executive Order 12988, Civil Justice Reform

    This interim final rule has been reviewed under EO 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 to this rule; and 
(3) administrative proceedings in accordance with the regulations of 
the Department of Agriculture's National Appeals Division (7 CFR part 
11) must be exhausted before bringing suit in court challenging action 
taken under this rule unless those regulations specifically allow 
bringing suit at an earlier time.

Executive Order 13132, Federalism

    It has been determined, under EO 13132, Federalism, that this 
interim final 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.
    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 
economic impact on a substantial number of small entities. This interim 
rule affects entities that utilize the Section 9003 Guaranteed Loan 
Program and any prospective entities that may utilize the program in 
the future. Between fiscal years 2009 and 2014, the Agency received 42 
applications. Of these 42 applications, 28 applications were either 
withdrawn by the applicant/borrower, were determined by the Agency to 
be ineligible, or have had program funds previously committed, 
deobligated. Of the remaining 14 applications, the Agency issued 10 
Conditional Commitments and 4 applications are pending further review 
and evaluation. The Agency estimates that most, if not all, of the 
entities that submitted applications would be considered a small 
entity, as defined by the Regulatory Flexibility Act, based on using 
the SBA-established threshold of 1,000 employees for defining a small 
business for the NAICS code 325199 (which is often used as a default 
code for many the entities applying for the Section 9003 program). 
Because of this high percentage, the Agency has determined that this 
rule will have an impact on a substantial number of small entities.
    However, the Agency has determined that the economic impact of this 
rule on these entities will not be significant. The most significant 
change in the rule that affects entities applying for this program is 
the implementation of the two-phase application process, which will 
have a positive impact on most applicants. Under the two-phase 
application process, all applicants must submit a Phase I application 
and then only a smaller subset of these applicants would submit the 
Phase II application. Under the current interim rule, all applicants 
have to submit an application that is equivalent to a combined Phase I 
and Phase II application. The new application process reduces the cost 
to those applicants who are ``unsuccessful''--that is, to those who are 
not invited to submit a Phase II application. This change reduces the 
impact of the Section 9003 program by almost 70 percent for the 
``unsuccessful'' applicant. Thus, under the new application process, 67 
percent of the applicants between fiscal years 2009 and 2014 would have 
incurred significantly lower application costs.
    Based on the data in the Paperwork Reduction Act (PRA) burden 
package, the Agency estimates the cost of the rule to be approximately 
$31,000 per successful applicant. This is based on determining which of 
the estimated costs in the PRA burden package would be incurred by the 
entities applying for and participating in the program. As noted above, 
most of the entities applying for and participating in the Section 9003 
program are likely to be small businesses. The Agency examined the 10 
entities to whom conditional commitments were made and the four 
entities whose applications are still pending. With the exception of 
two projects, none of the projects are yet operating. Thus, the Agency 
does not have actual financial information to use to evaluate the 
impact of the rule on these entities. Therefore, the Agency elected to 
look at the financial data (specifically, projected revenue or sales 
data when the projects reach full production) supplied in the 
applications and upon which the Agency made its decisions as to which 
projects to issue conditional commitments. Based on these data, the 
range of projected annual revenues/sales for these 14 projects is $4.1 
million to $262 million. A cost of $31,000 per entity represents 
approximately 0.75% of the projected revenues for the smallest 
projected revenue stream down to 0.01% for the largest. Therefore, this 
rule will not have a significant impact on a substantial number of 
small entities.

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

    The regulatory impact analysis conducted for this interim final 
rule meets the requirements for EO 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

    This Program is not subject to the provisions of EO 12372, which 
require intergovernmental consultation with State and local officials.

Executive Order 13175, Consultation and Coordination with Indian Tribes

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

[[Page 36414]]

Programs Affected

    The Biorefinery Assistance Program is listed in the Catalog of 
Federal Domestic Assistance under Number 10.865. This will be updated 
with the Program's new name, as changed by the 2014 Farm Bill, the 
``Biorefinery, Renewable Chemical, and Biobased Product Manufacturing 
Assistance Program.''

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, the Rural 
Business-Cooperative Service announces its intention to seek OMB 
approval of the new reporting and recordkeeping requirements contained 
in this rule.
    The following annual estimates are based on an estimated volume of 
activity of 32 Phase 1 applications, 11 Phase 2 applications, and 6 new 
loan guarantees. Phase 1 applications are evaluated by the Agency to 
determine whether the Borrower is eligible, the proposed loan is for an 
eligible purpose, there is reasonable assurance of repayment ability, 
there is sufficient Collateral and equity, and the proposed loan 
complies with all applicable statutes and regulations. Phase 2 
applications are only required for those applicants submitting 
eligible, high scoring phase I applications.
    Estimate of Burden: Public reporting burden for the requirements 
will increase the current collection of information by an estimated 
total of 6,281 hours. The Agency anticipates the number of respondents 
to fluctuate based on funding levels. The average burden per respondent 
under the current interim rule is estimated to be 148 hours, and the 
average burden under the subsequent interim rule is estimated to be 410 
hours, for an estimated increase of 262 hours per respondent.
    Respondents: Respondents for this data are lending institutions and 
for profit businesses but also include individuals and corporations, 
non-profit businesses, Indian Tribes, units of State and Local 
Governments, farmer and rural electric cooperatives, Associations of 
Agricultural Producers, Institutions of Higher Education, public power 
entities, and consortiums of any of the foregoing entities. The annual 
estimates below are for both subparts associated with this rule.
    Estimated Number of Respondents: 32.
    Estimated Number of Responses per Respondent: 23.5.
    Estimated Number of Responses: 752.
    Estimated Total Annual Burden (hours) on Respondents: 13,115.
    Copies of this information collection can be obtained from Jeanne 
Jacobs, Regulations and Paperwork Management Branch, Support Services 
Division, U.S. Department of Agriculture, Rural Development, STOP 0742, 
1400 Independence Ave. SW., Washington, DC 20250-0742 or by calling 
(202) 692-0040.
    Comments: Comments are invited on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the Agency, including whether the information will 
have practical utility; (b) the accuracy of the Agency's estimate of 
the burden of the proposed collection of information including the 
validity of the methodology and assumptions used; (c) ways to enhance 
the quality, utility and clarity of the information to be collected; 
and (d) ways to minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology.
    Comments may be sent to Jeanne Jacobs, Regulations and Paperwork 
Management Branch, U.S. Department of Agriculture, Rural Development, 
STOP 0742, 1400 Independence Ave. SW., Washington, DC 20250. All 
responses to this rule will be summarized and included in the request 
for OMB approval. All comments will also become a matter of public 
record.

E-Government Act Compliance

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

USDA Non-Discrimination Statement

    The U.S. Department of Agriculture (USDA) prohibits discrimination 
against its customers, employees, and applicants for employment on the 
bases of race, color, national origin, age, disability, sex, gender 
identity, religion, reprisal and, where applicable, political beliefs, 
marital status, familial or parental status, sexual orientation, or all 
or part of an individual's income is derived from any public assistance 
program, or protected genetic information in employment or in any 
program or activity conducted or funded by the Department. (Not all 
prohibited bases will apply to all programs and/or employment 
activities.)
    If you wish to file an employment complaint, you must contact your 
agency's EEO Counselor (PDF) within 45 days of the date of the alleged 
discriminatory act, event, or in the case of a personnel action. 
Additional information can be found online at http://www.ascr.usda.gov/complaint_filing_file.html
    If you wish to file a Civil Rights program complaint of 
discrimination, complete the USDA Program Discrimination Complaint Form 
(PDF), found online at http://www.ascr.usda.gov/complaint_filing_cust.html, or at any USDA office, or call (866) 632-
9992 to request the form. You may also write a letter containing all of 
the information requested in the form. Send your completed complaint 
form or letter to us by mail at U.S. Department of Agriculture, 
Director, Office of Adjudication, 1400 Independence Avenue SW., 
Washington, DC 20250-9410, by fax (202) 690-7442 or email at 
[email protected].
    Individuals who are deaf, hard of hearing, or have speech 
disabilities and you wish to file either an EEO or program complaint 
please contact USDA through the Federal Relay Service at (800) 877-8339 
or (800) 845-6136 (in Spanish).
    Persons with disabilities who wish to file a program complaint, 
please see information above on how to contact us by mail directly or 
by email. If you require alternative means of communication for program 
information (e.g., Braille, large print, audiotape, etc.) please 
contact USDA's TARGET Center at (202) 720-2600 (voice and TDD).

III. Background

    On February 14, 2011, the Agency published an interim final rule 
for the Biorefinery Assistance Program (the Program) in the Federal 
Register (76 FR 8404). The interim final rule addressed comments that 
the Agency received on the proposed rule, which was published in the 
Federal Register on April 16, 2010 (75 FR 20044), and to clarify 
proposed provisions. Changes were made throughout the rule, with many 
of the changes addressing definitions; Lender, Borrower, and Project 
eligibility requirements; application requirements and scoring; and 
various loan guarantee provisions, such as those associated with 
conditions of guarantee, fee, Interest rates and loan terms, and 
maximum percent guarantee.
    The interim final rule became effective on March 16, 2011, and the 
Agency provided a 60-day comment period for the public to submit 
comments on the interim final rule.

[[Page 36415]]

Today's action is addressing the public comments received.
    On February 7, 2014, the 2014 Farm Bill was signed into law. 
Section 9003 of the 2014 Farm Bill addresses the Program. The Agency 
held a listening session on March 13, 2014, to receive input from 
interested stakeholders on the various energy and bioeconomy provisions 
of the 2014 Farm Bill. No comments specific to the Program were 
received.
    In addition to renaming the Program the ``Biorefinery, Renewable 
Chemical, and Biobased Product Manufacturing Assistance,'' Section 9003 
affects funding associated with Biobased Product Manufacturing 
facilities and funding associated with Biorefineries producing 
Renewable Chemicals. Section 9003 also requires the Secretary of 
Agriculture to ensure diversity in the types of Projects approved under 
the Program.
    The Agency has been implementing the Program since the 2008 Farm 
Bill. During this time, the Agency has applied a ``commercial lending'' 
framework to the Program. The Agency has determined that the Program 
can be implemented more effectively by adding the flexibility of using 
a ``project finance-based'' framework. In order to add project finance-
based framework aspects, it is necessary to revise certain Program 
provisions, which are discussed later in this preamble.
    Lastly, the Agency is restructuring the rule to be a ``stand 
alone'' rule. The current interim rule relies heavily on incorporating 
the guaranteed loan provisions of the Agency's B&I Guaranteed Loan 
program. The Agency has decided to eliminate the extensive cross-
references to the B&I Guaranteed Loan program and in its place create a 
``self-contained'' rule for the Program. In the course of doing this, 
the Agency is taking the opportunity to clarify and/or modify many of 
the provisions previously incorporated by reference in order to improve 
Program administration.
    Most of the current interim rule's provisions have been carried 
forward into the subsequent interim rule, although there have been 
several significant changes. A summary of major changes to the current 
interim rule are summarized below in Section IV of this preamble. All 
of the comments received on the current interim rule and during the 
listening session are summarized in Section V of this preamble. Section 
VI presents in brief the substantive changes, if any, made in each 
section of the rule.
    Interim final rule. USDA Rural Development is issuing this rule as 
an interim final rule, effective July 24, 2015. All provisions of this 
rule 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.

IV. Discussion of Major Changes to the Program

    As noted above, the changes being made to the Program are due to: 
(1) Statutory changes resulting from the 2014 Farm Bill, (2) based on 
the Agency's experience in operating the Program since it was 
authorized in 2008, amending the Program to enable flexibility to use a 
project finance-based framework, (3) the Agency's consideration of 
public comments on the February 14, 2011, interim final rule, and (4) 
the Agency's decision to create a ``self-contained'' rule. The 
following discussion presents the major changes made in response to 
these four considerations.

A. The 2014 Farm Bill

    Section 9003 of the 2014 Farm Bill requires the Agency to modify 
the current interim rule in order to:
     include Biorefineries that primarily produce Renewable 
Chemicals;
     include Biobased Product Manufacturing; and
     ensure that there is diversity in the types of Projects 
approved.
1. Renewable Chemicals
    The 2014 Farm Bill provisions add ``Renewable Chemicals'' to the 
Program's title and purpose statement, but do not address how the 
Program will assist Renewable Chemical facilities.
    Currently, Biorefineries are required to primarily produce Advanced 
Biofuels in order to participate. Under the subsequent interim rule, 
the Agency is removing the regulatory requirement that the majority of 
production of a Biorefinery be an Advanced Biofuel. By removing this 
regulatory requirement, a Biorefinery producing Advanced Biofuel and 
Renewable Chemicals, will be able to participate without having to meet 
a specific minimum threshold production level of Advanced Biofuel.
    When considering the eligibility of Biorefineries that produce 
Renewable Chemicals, the Agency will include in its consideration 
reliance on the program purpose and scope and the definitions of 
``Biorefinery'' and ``Eligible Technology'' as found in 7 U.S.C. 8101 
and 8103).
    The purpose of the Program is to assist in the development of 
Advanced Biofuels, Renewable Chemicals, and Biobased Product 
Manufacturing.
    ``Biorefinery.--The term `Biorefinery' means a facility (including 
equipment and processes) that (A) converts renewable biomass into 
biofuels and biobased products; and (B) may produce electricity.'' 7 
U.S.C. 8101(7) (emphasis added.) The Agency interprets this definition 
to mean that the facility must produce Biofuel and may produce Biobased 
Products (which includes Renewable Chemicals) and may produce 
electricity.
    ``Eligible technology.--The term `Eligible Technology' means, as 
determined by the Secretary (A) a technology that is being adopted in a 
viable Commercial-Scale operation of a Biorefinery that produces an 
Advanced Biofuel; and (B) a technology not described in subparagraph 
(A) that has been demonstrated to have technical and economic potential 
for commercial application in a Biorefinery that produces an Advanced 
Biofuel.'' 7 U.S.C. 8103(b)(2) (emphasis added.)
    Under the subsequent interim rule, a Biorefinery may convert 
Renewable Biomass into Renewable Chemicals or Biobased Products and 
must produce an Advanced Biofuel.
    While requiring Biorefineries produce an Advanced Biofuel, the 
subsequent interim rule does not set a specific minimum production 
level of Advanced Biofuel and does not require that the Advanced 
Biofuel be sold as Biofuel. A Biorefinery may sell the Advanced Biofuel 
that it produces as a Biofuel or for other non-fuel usage. A 
Biorefinery may further process the Advanced Biofuel into Renewable 
Chemicals or other Biobased Products or use the Biofuel as a fuel for 
heat or power in its process or generate electricity.
    Food or feed are not eligible Biobased Products (see Sec.  4279.202 
for definition of Biobased Products). However, a Renewable Chemical 
that is food-grade would be eligible.
    In summary, the subsequent interim rule requires that at least some 
amount of Advanced Biofuel is produced, but does not set a specific 
minimum production level of Advanced Biofuel. The subsequent interim 
rule does not require that the Advanced Biofuel be sold as Biofuel. The 
Biorefinery may sell the Advanced Biofuel that it produces as a 
Biofuel, Renewable Chemical, or for other non-fuel usage. Further, the 
Biorefinery may process the Advanced Biofuel into Renewable Chemicals 
or other Biobased Products or use the Biofuel as a fuel for heat or 
power in its process or generate electricity.

[[Page 36416]]

2. Biobased product manufacturing facilities
    The primary substantive change related to Biobased Product 
Manufacturing facilities is that the Program will now be able to 
provide funding to Biobased Product Manufacturing facilities.
    The 2014 Farm Bill provides the definition of ``Biobased Product 
Manufacturing,'' which the Agency has incorporated into the subsequent 
interim rule. See Sec.  4279.202. This definition requires the Biobased 
Product Manufacturing facility to use Renewable Chemicals and other 
biobased outputs of Biorefineries as inputs to produce end-user 
products. The facility must also use Technologically New Commercial-
Scale processing and manufacturing equipment.
    As being implemented under the subsequent interim rule, these 
facilities can be either stand-alone facilities or add-ons to existing 
Biorefineries. The amount of funding that can be used to support these 
facilities is limited by the 2014 Farm Bill to no more than 15 percent 
of mandatory funds made available in FY 2014 and FY 2015 to promote 
Biobased Product Manufacturing. (Note: This excludes any and all FY 
2016 mandatory funds and all discretionary funds.)
    The Agency is adding a new paragraph to the Project eligibility 
section to address Biobased Product Manufacturing facilities. The 
general Program requirements apply to financing of Biobased Product 
Manufacturing facilities. The Agency will publish, subsequent to the 
publication of this rule, a notice in the Federal Register soliciting 
applications for Biobased Product Manufacturing facilities.
3. Project Diversity
    The 2014 Farm Bill provisions require that there be diversity in 
the types of Projects approved under the Program. The relevant 
provision states ``the Secretary shall ensure that, to the extent 
practicable, there is diversity in the types of Projects approved for 
loan guarantees to ensure that as wide a range as possible of 
technologies, products, and approaches are assisted.'' 7 U.S.C. 
8103(d)(1)(D).
    The Agency is implementing this provision by including authority 
for the Administrator to award discretionary points in the priority 
scoring and selection process. As implemented under the subsequent 
interim rule, the Administrator, at the Administrator's discretion, may 
award up to 10 points to ensure as wide a range as possible of 
technologies, products, and approaches are assisted in the Program's 
portfolio.

B. Improvements in program administration

    As has been noted, the Agency is supplementing the commercial 
lending framework with the flexibility to use a project finance-based 
framework. A commercial loan is generally made to well-established 
companies in established industries. Commercial loans are secured by 
business assets. The evaluation of a commercial loan is generally based 
on the historical financial performance of the business and its 
financial performance in comparison to its industry peers.
    Project financing is the financing of infrastructure and industrial 
projects. The evaluation of a project financing loan relies primarily 
on the development of a project and its cash flow for repayment, with 
the project's assets as secondary security or collateral.
    Supplementing the Program with a project finance-based framework 
will align the Program with the Lenders standards and procedures and 
improve the Agency's evaluation of loan guarantee applications and 
credit risks. Significant changes are discussed below.
1. Two-Phase Application Process
    The rule currently requires all applicants to submit a complete 
application including a technical report, environmental analysis, and 
the Lender's credit evaluation, as specified in the rule. The 
subsequent interim rule divides the application process into two 
phases. Phase 1 applications will provide information to determine 
Lender, Borrower, and Project eligibility; preliminary economic and 
technical feasibility; and the priority score of the application. Based 
on the priority score ranking, the Agency will invite applicants whose 
Phase 1 applications receive higher priority scores to submit Phase 2 
applications. Phase 2 application materials will be submitted as the 
project planning and engineering is finalized and will include an 
environmental report, technical report, financial model, and the 
Lender's credit evaluation, as specified in the rule.

                      Phase 1 Application Materials
  [Phase 1 application content must be submitted in an initial complete
                          application package]
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
1. Project Summary.
2. Application form, Form RD 4279-1.
3. Financial statements--Audited annual statements and current
 statements.
4. Financial model and supporting assumptions.
5. Feasibility Study.
6. Business Plan.
7. Scoring information.
8. Intergovernmental consultation.
9. DUNS Number.
------------------------------------------------------------------------


                      Phase 2 Application Materials
 [Phase 2 application materials are submitted under the direction of the
 Agency and may be submitted as the materials are developed or updated]
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
1. Technical assessment/Technical Report.
2. Environmental Assessment.
3. Updates to application materials, as appropriate.
4. Other information requested by the Agency including contacts and
 agreements.
5. Lender's analysis, credit evaluation, and supporting materials.
6. Appraisals.
7. Lender's proposed Loan Agreement.
8. Estimate timing of loan closing and issuance of the Loan Note
 Guarantee (pre-construction or post-construction).
9. Credit rating--obtained under the direction of the Agency after loan
 terms and conditions have been established.
------------------------------------------------------------------------


[[Page 36417]]

2. Credit Evaluation
    The current interim rule requires Lenders to include an analysis of 
the credit factors associated with each guarantee application, 
including consideration of each of the following five elements:
    (1) Credit worthiness.
    (2) Cash flow.
    (3) Capital.
    (4) Collateral.
    (5) Conditions.
    Rather than focusing on a limited listing of elements, the 
subsequent interim rule requires the Lender to analyze all credit 
factors associated with each proposed loan and apply its professional 
judgment to determine that the credit factors, considered in 
combination, ensure loan repayment. This allows the Lender to apply a 
commercial lending framework or a project finance framework, as 
appropriate, on a project-by-project basis.
    The Agency has identified in the subsequent interim rule the 
factors it uses to conduct its credit evaluation of the Project and 
Borrower. These factors include, but are not limited to, debt 
structure, revenues, technical feasibility, project equity, and other 
project funding.
3. Collateral Evaluation
    Under the current interim rule, the adequacy of the Collateral is 
based on the value of the Project assets and requires the discounted 
Collateral value to be at least equal to the loan amount. The current 
interim rule does not evaluate the Collateral from the perspective of 
the Project's cash flow for repayment. However, of the Projects 
financed under this Program, the value of the assets is directly 
related to the Project's cash flow.
    Under the subsequent interim rule, the Agency has the flexibility 
to determine how Collateral will be evaluated on a case-by-case basis, 
taking into account the type of project and the types of assets.
4. Lender Responsibilities
    The subsequent interim rule places more emphasis on the Lender 
obtaining and relying on certain written materials (including, but not 
limited to, certifications, evaluations, appraisals, financial 
statements and other reports) from qualified third parties (including, 
among others, one or more independent engineers, appraisers, 
accountants, attorneys, consultants or other experts).

C. Public Comments on Interim Final Rule

    The Agency received four comment letters from the public on the 
current interim rule (see Section V below.) After reviewing the public 
comments, the Agency identified a number of changes to improve the 
Program including:
     Removing the 500 basis point spread requirement between 
the guaranteed and unguaranteed portions of the loan. (Sec.  
4279.231(a) of the current interim rule)
     Clarifying when a subordinate lien position may be taken 
on Borrower inventory and accounts receivables. (Sec.  4279.235(a))
     Adding a provision to allow the Lender to require 
Borrowers to fund debt service reserve accounts with loan proceeds. 
(Sec.  4279.210(c)(7))
     Revising the requirement for a Borrower to obtain an 
evaluation and either a credit rating or credit assessment for loan 
requests of $125 million or greater to requiring the Borrower to obtain 
a an evaluation and rating of the total Project's indebtedness, without 
consideration for a government guarantee, from a nationally-recognized 
statistical rating organization (NRSRO), as defined by the U.S. 
Security and Exchange Commission for all Projects with total Eligible 
Project Costs of $25 million or more. An updated rating may be required 
at the Agency's discretion if changes are subsequently made to the 
Project including changes to any contracts and agreements or changes to 
loan terms and conditions. (Sec.  4279.261(k)(5))

D. Stand-Alone Rule

    As discussed earlier, the Agency is restructuring the rule to be a 
``stand alone'' rule. The current interim rule relies heavily on 
incorporating the guaranteed loan provisions of the Agency's B&I 
Guaranteed Loan program. The Agency has decided to eliminate the 
extensive cross-references to the B&I Guaranteed Loan program and in 
its place create a ``self-contained'' rule for the Program. In the 
course of doing this, the Agency has restructured the rule. While the 
majority of the current interim rule's provisions have been carried 
forward, a number of provisions have been relocated. In addition, the 
Agency took the opportunity to clarify and/or modify many of the 
provisions previously incorporated by reference in order to improve 
Program administration.

V. Summary of Comments and Responses

    As noted earlier, the current interim rule was published in the 
Federal Register on February 14, 2011, with a 60-day comment period 
that ended April 15, 2011. The Agency received comments from four 
commenters, which included Biorefinery owner/operators, Lenders and 
investment banking institutions. 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.

A. Equity Requirements

    Comment: One commenter encouraged USDA to allow contributions of 
other real and personal property previously purchased with cash to 
count towards the Project equity requirement.
    Two commenters recommended clarification as to whether or not the 
Fair Market Value of the Project, based on audited financial 
statements, can be used in whole or in part to meet equity 
requirements. One of these two commenters also recommended 
clarification as to whether or not the value of qualified intellectual 
property based on audited financial statements may be substituted in 
whole or in part to meet equity requirements.
    One commenter recommended applying the Generally Accepted 
Accounting Principles (GAAP) utilized in the B&I Guaranteed Loan 
program such that the equity requirement may be calculated by deducting 
Federal grants from Eligible Project Costs in arriving at the equity 
requirement.
    One commenter recommended allowing Project assets funded with other 
Federal grants, as well as other subordinate financing, to qualify as 
Project equity in arriving at the 20 percent equity requirement. 
Another commenter also recommended including subordinated financing as 
Project equity for purposes of satisfying the Program's equity 
requirements.
    Response: The subsequent interim rule clarifies that Total Federal 
participation will not exceed 80 percent of total Eligible Project 
Costs. The subsequent interim rule states that the total amount of a 
loan guaranteed for a Project plus other Federal funding in the Project 
will not exceed 80 percent of total Eligible Project Costs. The 
remaining 20 percent of total eligible project cost must be funded from 
non-Federal sources. In addition, the subsequent interim rule revises 
the equity requirement by removing the balance sheet or financial 
statement equity test. The subsequent interim rule requires the 
Borrower and other principals involved in the Project to make a 
significant equity investment in the Project in the form of cash

[[Page 36418]]

contribution. Equity does not include loans to the Project. The Agency 
will establish the specific amount of equity it requires on a project-
by-project basis based on its credit evaluation.
    The following diagram illustrates the Project funding requirements 
and differentiates the cash equity requirement from non-Federal funding 
requirement:
[GRAPHIC] [TIFF OMITTED] TR24JN15.000

B. Financing More Than One Facility

    Comment: One commenter recommended clarifying whether or not more 
than one facility can be financed, together in the same loan package in 
order to be able to cross collateralize and to reduce application 
costs.
    Response: There is no provision in the current or subsequent 
interim rule that excludes Projects that would provide financing for 
more than one facility in one application. Thus, Projects may be 
submitted with more than one facility under the same loan application.

C. Interest Rates

    Comment: Two commenters stated that the Interest rate spread on the 
guaranteed and unguaranteed portions of the loan should not be 
restricted and should be allowed to follow market rates for similar 
investments with commensurate risk.
    Response: The Agency agrees that the Interest rates on the 
guaranteed and unguaranteed portions of the loan should be set by the 
market and this change has been incorporated into the subsequent 
interim rule. The requirement from the current interim rule of a 
maximum 500 basis point spread between the Interest rates on the 
guaranteed and unguaranteed portions of the loan has been removed.

D. Minimum Retention

    Comment: One commenter requested that the Agency lower the amount 
of the unguaranteed portion of the loan that the Lender must hold from 
7.5 percent to 5 percent.
    Response: The subsequent interim rule maintains that the Lender 
must retain 7.5 percent of the total loan amount. However, it allows 
for the Agency to reduce the percentage of the specific loan held, on a 
case by case basis, if the Lender establishes to the Secretary's 
satisfaction that reduction of the minimum retention percentage is to 
meet compliance with the Lender's regulatory authority.

E. Prototypes

    Comment: One commenter stated that alternate approaches to 
prototype testing of complex processes and facilities should be 
considered to build confidence for Commercial-Scale readiness. The 
commenter requests that the Agency allow ``Semi-Work'' Scale testing 
combined with predictive modeling to cut the cost of demonstration 
scale testing.
    Response: The Agency disagrees with the commenter. The Projects 
financed in the Program all involve complex processes which are stand-
alone but must be integrated with each other for the facilities to be 
successful. Integrated demonstration of all necessary processes 
provides the best way of minimizing risk to both the Lender and the 
Agency. Under the subsequent interim rule, Projects utilizing a 
technology that does not have a history of successful utilization in a 
Commercial-Scale operation of a Biorefinery that produces an Advanced 
Biofuel will be required to provide evidence supporting technical 
information and data for 120 days of continuous, steady state 
production from an integrated demonstration unit facility prior to 
issuance of the Loan Note Guarantee. The integrated demonstration unit 
must prove out the Project's ability to utilize Project relevant 
biomass and produce Advanced Biofuel at a yield and quality consistent 
with the design basis of the Project.

F. Liens

    Comment: One commenter recommended allowing a senior lien on the 
Borrower's cash in order to secure a portion of the unguaranteed loan 
amount retained by the Lender.
    Response: The Agency disagrees with the commenter's recommendation. 
It is important the Lender have a financial interest in the success and 
also in any possible failure of the Project and

[[Page 36419]]

requiring that the Lender hold a certain percentage of the unguaranteed 
portion of the loan, and not allowing additional Collateral solely to 
secure the unguaranteed portion of the loan, is key to that position. 
Therefore, the rule does not allow for additional Collateral to be 
obtained solely for the purpose of securing the amount of the 
unguaranteed portion of the loan that must be held by the Lender.
    Comment: One commenter requested that the Agency clarify whether or 
not a Working Capital Lender may secure a senior lien position on 
inventory and accounts receivables and also have senior payment rights 
with respect to the proceeds of the sale of that Collateral.
    Response: The subsequent interim rule allows a Working Capital 
Lender to take a senior lien position on inventory and accounts 
receivables. The financial structure of the Project is under the 
discretion of the Lender and submitted to the Agency for review. If the 
Lender chooses to allow another banking institution to secure a lien on 
inventory and accounts receivables in exchange for Working Capital, it 
is permissible, provided that all Collateral requirements for the 
Agency guaranteed loan are met.

G. Tax Exempt Financing

    Comment: One commenter recommended allowing tax exempt financing to 
fund the unguaranteed portion of the loan.
    Response: OMB Circular A-129, Policies for Federal Credit Programs 
and Non-Tax Receivables, precludes adopting the commenter's suggestion.

H. Sale or Assignment

    Comment: One commenter recommended allowing the sale or assignment 
of a portion of the guarantee to subsidiaries or Affiliates under 
certain conditions.
    Response: It is the Agency's position that allowing the sale or 
assignment of a portion of the guarantee to subsidiaries or Affiliates 
constitutes a Conflict of Interest. In some servicing actions, such as 
changing loan terms and Interest rate reductions, the Holder of 
portions of the guaranteed loan would have to approve the modification. 
The Agency's concern is that allowing subsidiaries or Affiliates to 
have control over loan modifications that they have a direct benefit in 
constitutes a Conflict of Interest. To avoid any appearance of a 
Conflict of Interest, the subsequent interim rule prohibits the sale or 
assignment of any portion of the guaranteed loan to the Borrower or its 
parent, subsidiary or Affiliate or to officers, directors, 
stockholders, other owners, or members of their Immediate Families.

I. Bonds

    Comment: One commenter stated that any Agency required debt service 
reserve funds should not be viewed as Collateral for Bonds but rather 
as an accommodation to the bond market and that the proceeds of the 
sale of the Bonds should be permitted to be used to fund the debt 
service reserve funds thus making them Eligible Project Costs.
    Response: The Agency agrees with the commenter. The subsequent 
interim rule allows for the use of guaranteed loan or Bond proceeds to 
be used to fund a debt service reserve account, if the Lender deems it 
necessary. The Agency reserves the right to require a debt service 
reserve on all Projects.

J. Collateral

    Comment: One commenter stated that USDA should include assets 
acquired with other Federal funds on which the Lender is require to 
have first lien in the definition of Collateral in determining the 
value of Collateral, including loan-to-value calculations and net worth 
covenants.
    Response: The Agency agrees with the commenter and has modified the 
rule accordingly. The subsequent interim rule does not require that 
assets acquired with Federal funds be excluded from the total value of 
Collateral. Under the Program, the onus is on the Lender to obtain and 
maintain proper and adequate Collateral to protect the interest of the 
Lender, the Holder, and the Agency.

K. Eligible Project Costs

    Comment: One commenter requested a clarification whether or not the 
following are considered Eligible Project Costs: capitalized Interest, 
cost of financing, overhead expenditures of the Borrower related 
directly to a Project, development fees, license fees, third party 
engineering costs and other expenses such as rail lines, roads, and 
electric power lines.
    Response: All of the expenses listed by the commenter, except for 
development fees, would be considered Eligible Project Costs.

L. Credit Assessment

    Comment: One commenter recommended requiring a credit assessment on 
loans larger than $125 million rather than requiring a credit rating, 
which has significantly higher costs.
    Response: The Agency has removed the requirement for a credit 
rating from all applicants for loans of $125 million and more and will 
require an evaluation and rating only for applicants selected for Phase 
2 applications. The Agency is requiring an evaluation and rating of the 
total Project's indebtedness, without consideration for a government 
guarantee, from a nationally-recognized statistical rating organization 
(NRSRO), as defined by the U.S. Security and Exchange Commission, for 
all Projects with total Eligible Project Costs of $25 million 
submitting phase 2 applications. An updated rating may be required at 
the Agency's discretion if changes are subsequently made to the Project 
including changes to any contracts and agreements or changes to loan 
terms and conditions.

M. Surety

    Comment: One commenter recommended removing the requirement that 
surety be secured on work to be completed.
    Response: The Agency disagrees with the commenter. The commenter 
claims that the types of Projects in the Program will not be able to 
meet that requirement because these Projects are first-of-a-kind 
technology Projects where contractors will not accept the risk of a 
lump sum fixed price contract. Based on the Projects submitted to the 
Agency for review thus far, the majority have fixed price engineering, 
procurement and construction contracts, and many have wraps on the 
individual processes that constitute the Project. The rule specifies 
that Surety, as the term is commonly used in the industry, will be 
required. The Borrower must have either 100 percent performance/payment 
bonds on the contractors or a guarantee from a creditworthy parent 
entity or an alternative acceptable to the Lender and the Agency and 
must be secured. The bonding agent must be listed on Treasury Circular 
570.

VI. Section-By-Section Discussion

    This section presents, in brief, substantive changes and notable 
clarifications to the rule on a section-by-section basis. In developing 
the stand-alone rule, many existing provisions have been relocated to 
different places in the rule. Such relocations are not identified in 
the following discussion because the requirement itself has not 
changed.

A. 7 CFR Part 4279, Subpart C

Purpose and scope (Sec.  4279.201)
    The Agency modified this section to reflect expansion of the 
Program as a result of the 2014 Farm Bill provisions to address 
Renewable Chemicals and

[[Page 36420]]

Biobased Product Manufacturing and to reflect more directly the 
authorizing language establishing the Program.
Definitions and abbreviations (Sec.  4279.202)
    The Agency deleted terms that are no longer used within the rule. 
The Agency also added terms to, in part, incorporate changes in 
response to the 2014 Farm Bill and make improvements to the 
administration of the Program. Added terms include, but are not limited 
to:
     Annual Renewal Fee
     Biobased Product Manufacturing
     Bond
     Commercial-Scale
     Conflict of Interest
     Delinquency
     Good cause
     Grossly Negligent Loan Origination
     Grossly Negligent Loan Servicing
     In-house Expenses
     Interest termination date
     Liquidation Expenses
     Loan Packager
     Loan Service Provider
     Local Government
     Person
     Public Body
     Renewable Chemical
     Technologically New
     Well Capitalized
Exception authority (Sec.  4279.203)
    The Agency did not make any substantive changes to this section.
Appeals (Sec.  4279.204)
    The Agency provided additional examples and clarifications to this 
section, including reference to ``adverse'' decisions, but did not make 
any other substantive changes.
Prohibition under Agency programs (Sec.  4279.205)
    The Agency did not make any substantive changes to this section. 
The Agency removed the prohibition of assistance to Government 
employees and active military personnel who are directors or officers 
or have an ownership interest of 20 percent or more in the business 
from being eligible applicants. While this change has the potential to 
increase the pool of applicants, the Agency expects the actual impact 
to be minimal.
Agency representation (Sec.  4279.206)
    The Agency added this new section to ensure that in any litigation 
case in which the Agency is named a party the Agency has the right to 
be represented by the U.S. Department of Justice.
Lender eligibility requirements (Sec.  4279.208)
    The Agency replaced the specific Lender capital requirements with a 
cross-reference to FDIC's definition of ``Well Capitalized.'' This 
modification, however, does not change the actual capital requirements.
    The Agency also supplemented when Lenders must notify the Agency 
when under a ``cease-and-desist order'' with ``or other similar 
constraint, from a Federal agency'' to cover instances where different 
terminology is used.
    In addition, insurance companies regulated by a State or National 
insurance regulatory agency are no longer eligible for the Program.
Borrower eligibility requirements (Sec.  4279.209)
    The Agency did not make any changes to this section.
Project eligibility requirements (Sec.  4279.210)
    The Agency made a number of changes to this section including:
     Requiring that the Borrower and other principals involved 
in the Project make a significant equity investment in the Project in 
the form of cash contribution, with the specific amount of equity 
required determined by the Agency on a project-by-project basis based 
on its credit evaluation;
     Incorporating requirements associated with the 2014 Farm 
Bill provisions for Renewable Chemicals and Biobased Product 
manufacturing.
     Removing the provisions associated with the requirement 
that the majority of the Biorefinery production must be an Advanced 
Biofuel.
     Removing the paragraph addressing eligible feedstock. 
Feedstock is addressed in the definitions of ``Advanced Biofuel'', 
``Biorefinery'', and ``Renewable Biomass.''
     Clarifying Eligible Project Costs include an integrated 
demonstration unit under certain circumstances, professional services, 
necessary insurance and bonds, financing fees and costs, and cash 
reserve accounts.
     Incorporating ineligible project costs into this section. 
Changes include reducing/simplifying the identified ineligible purposes 
to only those costs that are most applicable to the Program; clarifying 
processing of corn kernel starch into biofuel is ineligible; and 
payments in excess of actual costs incurred by the contractor are 
ineligible under certain conditions. The absence of other ineligible 
loan purposes or project costs that are incorporated by reference under 
the current interim rule does not mean that they are now eligible.
General functions and responsibilities (Sec.  4279.214)
    The Agency made three substantive changes in this section:
     Clarifying the Lender's responsibility when contracting 
with third parties and when relying on information from qualified third 
parties.
     Prohibiting agents and Persons from acting as both Loan 
Packager and Loan Service Provider on the same guaranteed loan. This 
implements a best practice.
     Requiring the keeping of a Collateral inventory by the 
Lender. This implements a best practice that a reasonable Lender should 
be doing as part of its normal business practice.
Credit evaluation (Sec.  4279.215)
    The Agency revised this section based on experience administering 
the Program (as discussed earlier in Section III, Background.)
Environmental responsibilities (Sec.  4279.216)
    The Agency changed the role of the Lender from helping the Borrower 
complete Form RD 1940-20, ``Request for Environmental Information,'' to 
ensuring that the Borrower has provided the environmental assessment.
Oversight and monitoring (Sec.  4279.217)
    The Agency did not make any substantive changes to this section.
General conditions of guarantee (Sec.  4279.220)
    The Agency made two primary modifications to this section. First, 
the Lender may request a change in the standard from ``negligent'' to 
``grossly negligent'' for Loan Origination and Loan Servicing. The 
Agency will make this change on a case-by-case basis and only when the 
Lender can demonstrate to the Agency's satisfaction that changing to a 
``gross negligence'' standard will not materially impair the Agency's 
interests, determined solely at the Agency's discretion. The subsequent 
interim rule identifies several additional conditions that must be met 
for the Agency to grant such a request.
    Second, the Agency instituted a limitation on the period of time 
over which accrued Interest would be covered by the Loan Note 
Guarantee. If the Lender owns all or a portion of the guaranteed 
interest in the guaranteed loan or make a Protective Advance, the Loan 
Note Guarantee will not cover interest to the Lender accruing after 90 
days from the most recent Delinquency effect date as reported by the 
Lender. If the guaranteed loan has one or more Holders, the Loan Note 
Guarantee will

[[Page 36421]]

not cover interest to the Holder(s) accruing after the greater of 90 
days from the most recent Delinquency effect date as reported by the 
Lender or 30 days from the date the Lender or the Agency sends an 
interest termination letter to the Holder(s). These conditions are 
found in the definition of Interest Termination Date.
Rights and liabilities (Sec.  4279.221)
    The Agency did not make any substantive changes to this section.
Payments (Sec.  4279.222)
    The Agency did not make any substantive changes to this section.
Sale or assignment of guaranteed loan (Sec.  4279.223)
    The Agency made a number of clarifications to this section to 
ensure Lenders know how the process works.
    The Agency modified provisions associated with the multi-note 
option. The Agency removed limits on the number of notes that can be 
issued under the multi-note option. The Agency also removed the 
provision that allowed the Lender to issue a new series of notes when a 
loan is closed using the multi-note option and additional notes are 
desired at a later date.
Minimum retention (Sec.  4279.224)
    The Agency did not make any substantive changes to this section.
Repurchase from Holder (Sec.  4279.225)
    The Agency replaced the current provisions associated with the 
accrued Interest that the guarantee will cover with the provisions 
described above under Sec.  4279.220 and the Interest Termination Date 
definition and now addresses these provisions in paragraphs (b)(3) 
through (5) of the section.
    The Agency clarified that if the Agency repurchases 100 percent of 
the guaranteed portion of the loan, the Agency will not continue 
collection of the Annual Renewal Fee from the Lender.
    The Agency also made a number of clarifications to ensure Holders 
know how the repurchase process works.
Replacement of document (Sec.  4279.226)
    The Agency did not make any substantive changes to this section.
Equal Credit Opportunity Act (Sec.  4279.227)
    The Agency did not make any substantive changes to this section.
Fees (Sec.  4279.231)
    The Agency changed the basis for calculating the guarantee fee and 
Annual Renewal Fee from ``Total Project Costs'' to ``total Eligible 
Project Costs.''
Guaranteed loan funding (Sec.  4279.232)
    The Agency simplified and clarified the text describing the maximum 
amount of loan a Project is eligible for and changed reference from 
``equity'' to ``non-Federal sources.''
    In cases requesting 90 percent guarantee rate, the Agency restated 
the requirement for ``equity of 40 percent'' to ``total Federal 
participation . . . not be greater than 60 percent of total Eligible 
Project Costs.'' The Agency also replaced the requirement of the 
Collateral coverage ratio with a provision limiting tax credits, carbon 
credits and other subsidies to 10 percent of the Project's total 
revenue on an annual basis in the Borrower's base case of financial 
projections.
Interest rates (Sec.  4279.233)
    The Agency removed the requirement that the Interest 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.
    The Agency also modified the section to remove redundancies.
Terms of Loan (Sec.  4279.234)
    The Agency did not make any substantive changes to this section.
Collateral (Sec.  4279.235)
    The Agency restated the Collateral requirement to reflect the 
revised standards resulting from the Agency's experience administering 
the Program.
Insurance (Sec.  4279.243)
    The Agency did not make any substantive changes to this section.
Appraisals (Sec.  4279.244)
    The Agency made several changes and clarifications to this section, 
including:
     A clarification removed reference to a complete self-
contained appraisal and now requiring the appraisal must be reported in 
a manner that summarizes all of the information necessary for the 
intended users to understand the report and contain all information 
pertinent to the appraiser's opinions and conclusions.
     Clarifying that documentation is included showing that the 
appraiser has the necessary experience and competency to appraise the 
property in question.
     Adding a requirement that appraisals not be more than 1 
year old and that a more recent appraisal may be required by the Agency 
in order to reflect more current market conditions.
     For loan servicing purposes, updating to an appraisal may 
be acceptable in lieu of a completely new appraisal when the original 
appraisal is between one and two years old.
     Clarifying the requirements on what appraisals need to 
conform to.
     Adding a requirement for Lender to submit its technical 
review of the appraisal.
     For construction Projects, requiring the use of the ``as 
completed'' Market Value of the real estate to determine the value of 
the real estate.
Personal and corporate guarantees (Sec.  4279.245)
    The Agency revised the conditions under which owners may be 
exempted, in part or in full, from providing guarantees.
Construction planning and performing development (Sec.  4279.256)
    The Agency is clarifying a number of provisions associated with 
this section including:
     Lenders may contract for services and may rely on certain 
written materials and other reports provided by independent engineers 
or other qualified third parties;
     Borrowers must have either 100 percent performance/payment 
bonds on the contractors or a guarantee from a creditworthy parent 
entity or an alternative acceptable to the Lender and the Agency and 
must be secured;
     Lender requirements prior to the disbursement of 
construction funds (e.g., having on file major drawings and a detailed 
timetable for the Project, requiring the Borrower to have contingencies 
in place for handling unforeseen cost overruns);
     The contents of monthly construction reports and quarterly 
progress reports submitted by the Lender to the Agency; and
     Once construction is completed, final permits and 
accounting of project funds.
    The Agency is requiring Lenders to expeditiously report any 
problems in Project development to the Agency and to provide the Agency 
with a copy of the Notice of Completion when construction has been 
completed.
Borrower responsibilities (Sec.  4279.259)
    The Agency did not make any substantive changes to this section.
Guarantee applications--general (Sec.  4279.260)
    The Agency added a requirement that the Lender or Borrower must 
submit to the Agency a non-binding letter of intent to apply for loan 
guarantee not

[[Page 36422]]

less than 30 calendar days prior to the application deadline.
    The Agency revised the application deadlines from November 1 and 
May 1 to October 1 and April 1, respectively.
    The Agency clarified how application revisions submitted after the 
application deadline may impact the processing of the application and 
added ``ownership structure'' as a type of revision the Lender must 
report to the Agency.
Application for loan guarantee content (Sec.  4279.261)
    The Agency revised the application process to a two-phase 
application (see Section IV.B.1). The Agency will use Phase 1 
application information to determine Lender, Borrower, Project 
eligibility, economic and technical feasibility, and application 
priority score. Phase 2 application materials will be submitted as the 
Project planning and engineering develops and is finalized.
    As noted earlier, the Agency is revising the requirement for a 
Borrower to obtain an evaluation and either a credit rating or credit 
assessment for loan requests of $125 million or greater to requiring 
only Phase 2 applicants to obtain an evaluation and rating for Projects 
with total Eligible Project Costs of $25 million or greater. In 
addition to the evaluation and rating from a nationally recognized 
statistical rating organization, the Agency is also using its own 
credit evaluation (see Sec.  4279.215(b)) to conduct its ``assessment 
of the credit-worthiness of a security or money market instrument.'' 
The Agency has determined that these provisions are not in conflict 
with section 939A(b) of Pub. L. 111-203 (Dodd Frank).
    The Agency also expanded the application requirements from 
submittal of the required environmental information to include 
submittal of an environmental analysis that meets the policies and 
requirements of the National Environmental Policy Act and the Agency. 
In addition, the Agency added to the resource assessment content a 
requirement to address methods and systems to prevent the spread of 
invasive species.
Guarantee application processing (Sec.  4279.265)
    The Agency made several changes and clarifications to this section, 
including:
     Making conforming changes to remove reference to the 
financial metric criteria that are no longer part of the rule.
     Replacing reference to ``technical merit'' with 
``technical and economic feasibility'' to align with the authorizing 
statute.
     Adding that the economic feasibility of the Project will 
be based on the Agency's analysis of the Feasibility Study, the 
Lender's credit evaluation, and other application materials.
     Deleting the three financial metric criteria for the 
Borrower and replaced with consideration of the Project's economic 
feasibility.
     For those Projects utilizing a technology that does not 
have a history of successful utilization in a Commercial-Scale 
operation of a Biorefinery that produces an Advanced Biofuel, requiring 
the evaluation of technical feasibility to include evidence 
demonstrating 120 days of continuous, steady state production from an 
integrated demonstration unit.
Guarantee application scoring (Sec.  4279.266)
    The Agency made numerous changes and clarifications to this 
section, including:
     Revising the scoring criterion whether the Borrower has 
established a market for the Biofuel and Byproducts to evaluate the 
degree of commitment of Off-Take Agreements, duration of the Off-Take 
Agreements, financial strength of the off-take counterparty and 
dependency on subsidies. Total maximum points are increased from 10 to 
20.
     Revising the scoring criterion whether the Borrower is 
proposing to use a feedstock not previously used in the production of 
Advanced Biofuels by reducing the total maximum points from 15 to 10.
     Revising the scoring criterion regarding working with 
cooperatives to simplify distribution of points.
     Revising the scoring criteria regarding the level of 
financial participation by the Borrower by changing the metric from 
debt-to-tangible net worth ratio to Federal participation as a 
percentage of total Eligible Project Costs. Total maximum points are 
increased from 15 to 20.
     Revising the scoring criteria 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 by reducing the total maximum points from 10 to 5 
points.
     Revising the scoring criterion regarding the potential for 
Rural economic development by adding points if the majority of 
feedstock to be utilized by the Project, on an annual basis, is 
harvested from the land and by increasing total maximum points from 10 
to 20 points.
     Adding Administrator discretionary points to ensure, to 
the extent practical, there is diversity in the types of Projects 
approved for loan guarantees to ensure as wide a range as possible of 
technologies, products, and approaches are assisted in the Program's 
portfolio.
     Clarifying that the Agency will award points on the basis 
of its review and analysis of all application materials.
Selecting guarantee applications (Sec.  4279.267)
    The Agency added text to explain that procedures for selecting 
Biobased Product Manufacturing Projects will be identified in a Federal 
Register notice.
    With the change in the application deadlines and with the 
implementation of the two-phase application process (see Sec.  4279.260 
above), the Agency revised the dates by which the Agency expects to 
rank applications each year.
    The Agency also made conforming changes to accommodate the two-
phase application process.
Loan approval and obligating funds (Sec.  4279.278)
    The Agency clarified the procedures on how the Agency will handle 
Conditional Commitments and any changes thereto, including that changes 
must be for Good Cause. The Agency is also making clear that the 
Borrower must comply with all Federal requirements then in effect for 
receiving Federal assistance.
Transfer of Lenders (Sec.  4279.279)
    The Agency clarified the specifics on how the Agency will handle 
the transfer of Lenders, which reflects current policy.
Changes in Borrowers (Sec.  4279.280)
    The Agency did not make any changes to this section.
Conditions precedent to issuance of Loan Note Guarantee (Sec.  
4279.281)
    The Agency made explicit all of the forms and documents needed at 
or immediately after loan closing to include the following:
     Copy of the executed Promissory Note(s);
     Copy of the executed Loan Agreement;
     Copy of the executed settlement statement and updated 
source and use statement including all Project funding;
     Original, executed ``Unconditional Guarantee'' forms, as 
appropriate;
     Borrower's loan closing balance sheet; and

[[Page 36423]]

     Any other documents required to comply with applicable law 
or required by the Conditional Commitment or the Agency.
    The Agency reduced the number of certifications required and 
removed redundancy in the certifications being required.
    In the certification regarding the Borrower or its officers, 
directors, stockholders, or other owners having an ownership interest 
in the Lender, the Agency replaced ``substantial financial interest'' 
with ``more than a 5 percent ownership interest in the Lender.''
Refusal to execute Loan Note Guarantee (Sec.  4279.283)
    The Agency did not make any substantive changes to this section.
Requirements after Project construction (Sec.  4279.290)
    The Agency made conforming changes to accommodate the inclusion of 
Renewable Chemicals and Biobased Product Manufacturing.

B. 7 CFR Part 4287, Subpart D

Introduction (Sec.  4287.301)
    The Agency clarified that all loan servicing actions under this 
subpart, except for certain specific actions, are subject to Agency 
concurrence and that, whenever Agency approval is required, the 
servicing action must be for Good Cause.
Definitions (Sec.  4287.302)
    As discussed above, the definitions in Sec.  4279.202 apply for 
terms applicable to this subpart.
Exception authority (Sec.  4287.303)
    The Agency did not make any changes to this section.
Appeals (Sec.  4287.306)
    The Agency made edits to clarify what is appealable versus 
reviewable. In addition, the Agency expanded the provisions to reflect 
current practice.
Servicing (Sec.  4287.307)
    The Agency made several changes and clarifications to this section, 
including:
     Clarifying that while the Lender may contract with third 
parties and rely on information from qualified third parties that the 
Lender is solely responsible for servicing the loan.
     Adding additional examples of servicing responsibilities.
     Requiring Lenders to submit monthly Default reports.
     Revising the timeframes for submitting financial 
statements.
     Requiring the written summary provided by the Lender to 
include any violations of loan covenants and covenant waivers proposed 
by the Lender and any routine servicing actions performed.
     Updating the audit requirements to conform to 2 CFR part 
200, subpart F and including Indian Tribes as being subject to the 
audit requirements.
     Clarifying, as a conforming change, that the guarantee is 
unenforceable under either negligent loan servicing or grossly 
negligent loan servicing as established in the Loan Note Guarantee.
Interest rate changes (Sec.  4287.312)
    All increases in interest rates must be for Good Cause. The Agency 
did not make any other substantive changes to this section.
Release of Collateral (Sec.  4287.313)
    The Agency made several changes and clarifications to this section, 
including:
     Clarifying that working assets can be released for routine 
business purposes without prior concurrence of the Agency when the loan 
is in good standing.
     Summarizing appraisal requirements.
     Requiring justifications and conditions for release of 
Collateral to include: applying the Collateral sold to Borrower debt, 
using net proceeds to purchase other Collateral of equal or greater 
value, and applying the proceeds to the business operations. Assurance 
that the release of Collateral is essential for the success of the 
business must be provided by the Lender.
Subordination of Lien Position (Sec.  4287.323)
    The Agency made several changes to this section, including:
     Removing the limitation concerning the Subordination to a 
revolving line of credit cannot exceed one year.
     Replacing the requirement for adequate consideration for 
the Subordination with the requirement that the Subordination must be 
in the best financial interest of the Agency.
     Removing the provision prohibiting a Subordination from 
extending beyond the term of the guaranteed loan because a 
Subordination deals solely with the lien position on joint Collateral 
and does not address the term of the guaranteed loan.
     Requiring the Lender's Subordination proposal to include a 
financial analysis of the servicing action and be fully supported by 
current financial statements.
     Allowing a Subordination on accounts receivables and 
inventory to a line of credit.
     Providing the Agency the discretion to require an 
appraisal of Collateral assuring proper Collateral coverage.
     Providing the Agency the ability to deny Subordinations of 
the Lender's lien position for good cause.
Alterations of Loan Instruments (Sec.  4287.324)
    The Agency did not make any changes to this section.
Transfer and Assumption (Sec.  4287.334)
    The Agency made several changes and clarifications to this section, 
including:
     Clarifying that a Transfer and Assumption of the 
Borrower's operation can take place either before or after the loan 
goes into liquidation.
     Prohibiting a Transfer and Assumption if Borrower 
Collateral has been purchased through foreclosure or the Borrower has 
conveyed title to the Lender.
     Providing Agency discretion as to when personal or 
corporate guarantees are required and whether the guarantees will be 
full or partial.
     Requiring that any new loan terms must also be for Good 
Cause.
     Adding a provision that the Agency will not approve any 
change in terms that results in an increase in the cost of the loan 
guarantee, except for good cause and only if the change otherwise 
conforms to applicable regulations.
     As one of the conditions for a release of liability, 
requiring that all of the loan Collateral is transferred to the 
transferee if the transferee is assuming the full amount of loan.
     If the proposed Transfer and Assumption is for less than 
the full amount of the Agency guaranteed loan, requiring an appraisal 
and limiting the appraised value of the Collateral to not less than the 
amount of the assumption.
     Requiring a legal opinion to accompany each request for a 
Transfer and Assumption.
     Prohibiting the issuance of new Promissory Notes to the 
transferee.
     Requiring a legal opinion that, upon its execution, the 
Transfer and Assumption is completed, valid, and enforceable and a 
certification that the Transfer and Assumption is consistent with the 
Agency's approved conditions for the transfer.
     Adding a requirement that, when the transfer and 
transferee are Affiliates or related parties, the Transfer and 
Assumption must be to an eligible Borrower and must continue the 
Project for eligible purposes as well as be for the full amount of the 
guaranteed loan indebtedness.
     Providing a description of the calculation of the transfer 
fee.

[[Page 36424]]

     Removing, with regard to change in control of the 
Borrower, reference to ``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.''
Substitution of Lender (Sec.  4287.335)
    The Agency made several changes and clarifications to this section, 
including:
     Requiring the Lender to transfer the original Promissory 
Note and loan security documents to the new Lender, who must agree to 
the current loan terms.
     Adding additional procedures to be followed when there is 
a substitution of Lender.
     Requiring the request for a substitute Lender to be from 
the Borrower, the proposed substitute, and the original Lender if still 
in existence.
     Clarifying that where a Lender has been merged with or 
acquired by another Lender, the new Lender must execute a new Lender's 
Agreement unless the new Lender already has a valid Lender's Agreement 
with the Agency.
Lender Failure (Sec.  4287.336)
    The Agency added this new section to address procedures when a 
Lender fails.
    The acquiring Lender must take such action that a reasonable Lender 
would take if it did not have a Loan Note Guarantee.
Default by Borrower (Sec.  4287.345)
    The Agency made several changes and clarifications to this section, 
including:
     Clarifying Lender duties in the event of a loss, including 
acting reasonably, working with the Borrower to cure the Default, and 
minimizing potential loss in the case of liquidation.
     Requiring monthly (rather than every other month) reports 
while the loan is still in Default.
     Removing reference to subsequent loan guarantees as a 
servicing option.
     Prohibiting capitalization of accrued Interest.
     Allowing balloon payments as a servicing option under 
certain conditions.
     Prohibiting the Lender from claiming Default or penalty 
Interest, late payment fees, and Interest-on-Interest when there is a 
loss or repurchase.
     Prohibiting debt write-down by the Lender where the Lender 
will continue with the Project loan, except as directed or ordered by a 
final court order.
     In instances of a loss, not allowing the guarantee to 
cover any accrued Interest in accordance with the Interest Termination 
Date as discussed earlier under Sec.  4279.220.
Protective Advances (Sec.  4287.356)
    The Agency made several changes and clarifications to this section, 
including:
     Clarifying that Protective Advance claims are paid only at 
the time of the final loss payment.
     Not allowing the guarantee to cover Interest on the 
Protective Advance accruing after the Interest Termination Date as 
discussed earlier under Sec.  4279.220.
     Revising the cumulative total of Protective Advances for 
which Agency authorization is required from ``$100,000'' to ``$200,000 
or 10 percent of the outstanding principal, whichever is less.''
Liquidation (Sec.  4287.357)
    The Agency made a number of changes and clarifications to this 
section, including:
     Clarifying that when the decision to liquidate is made, if 
any portion of the loan has been sold or assigned, provisions will be 
made for repurchase.
     Explaining more clearly how the Agency will handle the 
Lender's liquidation plan, including its approval and the resolution of 
any Agency concerns.
     Requiring the Lender to take such actions that a 
reasonable Lender would take without a guarantee and to keep the Agency 
informed of such actions.
     Allowing a liquidation plan to be submitted with an 
estimate of Collateral value with Agency approval subject to the 
results of the final liquidation appraisal.
     Requiring the Lender to notify the Agency of any changes 
and updates (e.g., change in value based on the liquidation appraisal) 
in the liquidation plan.
     Clarifying provisions regarding protective bids.
     Explaining when Agency approval is or is not required for 
acceleration.
     Limiting the accrual of Interest in accordance in the 
Interest Termination Date as discussed earlier under Sec.  4279.220.
     Explaining more clearly the process for compromise 
settlements.
     Spelling out the responsibilities of the Lender during 
litigation proceedings.
Determination of Loss and Payment (Sec.  4287.358)
    The Agency made a number of changes and clarifications to this 
section, including:
     Prohibiting the estimated loss payment from being used to 
reduce the unpaid balance owed by the Borrower.
     Revising the time period that the Agency will not 
guarantee accrued Interest in accordance with the Interest Termination 
Date as discussed earlier under Sec.  4279.220.
     Allowing the Agency to consider a compromise settlement of 
Federal Debt after it has processed a final ``Guaranteed Loan Report of 
Loss'' and issued a 60 day due process letter.
     Prohibiting the sharing of any funds collected on Federal 
Debt with the Lender.
     Expanding the provision for the consideration of 
Liquidation Expenses to include:
    [cir] Prohibiting the Lender from claiming any Liquidation Expenses 
in excess of liquidation proceeds.
    [cir] Requiring Agency approval of any changes to the Liquidation 
Expenses that exceed 10 percent of the amount proposed in the 
liquidation plan.
    [cir] Sharing equally between the Lender and Agency reasonable 
attorney/legal expense.
    [cir] Prohibiting the guarantee fee and annual renewal fee as an 
authorized Liquidation Expense.
Future Recovery (Sec.  4287.369)
    The Agency revised this section to require the Lender, after the 
final loss claim has been paid, to use reasonable efforts to attempt 
collection from any party still liable on the guaranteed loan. Any net 
proceeds from that effort must be split Pro Rata between the Lender and 
the Agency based on the original amount of the loan guarantee.
Bankruptcy (Sec.  4287.370)
    The Agency made a number of changes and clarifications to this 
section, including:
     Requiring Lenders to monitor bankruptcy plans to determine 
Borrower compliance and, if the Borrower fails to comply, pursue 
appropriate relief.
     Requiring Lenders to submit a Default status report within 
15 days after the date the Borrower Defaults and every 30 days 
thereafter until the Default is resolved or a final loss claim is paid 
by the Agency. The Default status report will be used to inform the 
Agency of the bankruptcy filing, the plan confirmation date, when the 
plan is complete, and when the Borrower is not in compliance with the 
plan.
     Requiring the Lender to request a bankruptcy loss payment 
of the guaranteed portion of the accrued Interest and principal 
discharged by the court for all bankruptcies when all or a portion of 
the debt has been discharged.

[[Page 36425]]

     Allowing only one bankruptcy loss payment during the 
bankruptcy proceeding unless the Bankruptcy Court approves a subsequent 
change to the bankruptcy plan.
     Requiring the Lender to use the Guaranteed Loan Report of 
Loss form to request a bankruptcy loss payment or to revise any 
bankruptcy loss payments.
     Revising when Protective Advances can be payable under the 
guarantee in the final loss claim and what kinds of expenses can be 
considered Liquidation Expenses.
     Expanding the types of expenses incurred during bankruptcy 
proceedings beyond just legal expenses and how those expenses will be 
treated.
Termination of Guarantee (Sec.  4287.380)
    The Agency did not make any substantive changes to this section.

VII. Invitation To Comment

    RD encourages interested persons and organizations to submit 
written comments, which may include data, suggestions, or opinions. 
Commenters should include their name, address, and other appropriate 
contact information. If persons with disabilities (e.g., deaf, hard of 
hearing, or have speech difficulties) require an alternative means of 
receiving this notice (e.g., Braille, large print, audiotape) in order 
to submit comments, please contact USDA's TARGET Center at (202) 720-
2600 (voice and TDD).
    Comments may be submitted by any of the means identified in the 
ADDRESSES section. If comments are submitted by mail or hand delivery, 
they should be submitted in an unbound format, no larger than letter-
size, suitable for copying and electronic filing. If confirmation of 
receipt is requested, a stamped, self-addressed, postcard or envelope 
should be enclosed. RD will consider all comments received during the 
comment period and will address comments in the preamble to the final 
rule.

List of Subjects for 7 CFR Parts 4279 and 4287

    Loan programs--Business and industry, Loan programs--Rural 
development assistance, Economic development, Energy, Direct loan 
programs, Grant programs, Guaranteed loan programs, Renewable energy 
systems, Energy efficiency improvements, Rural areas.

    For the reasons set forth in the preamble, parts 4279 and 4287 of 
title 7 of the Code of Federal Regulations are amended as follows:

PART 4279--GUARANTEED LOANMAKING

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

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

0
2. Revise subpart C to read as follows:
Subpart C--Biorefinery, Renewable Chemical, and Biobased Product 
Manufacturing Assistance Loans

General

Sec.
4279.201 Purpose and scope.
4279.202 Definitions and abbreviations.
4279.203 Exception authority.
4279.204 Appeals.
4279.205 Prohibition under Agency programs.
4279.206 Agency representation.
4279.207 [Reserved]

Eligibility Requirements

4279.208 Lender eligibility requirements.
4279.209 Borrower eligibility requirements.
4279.210 Project eligibility requirements.
4279.211-4279.213 [Reserved]

Lender Functions and Responsibilities

4279.214 General functions and responsibilities.
4279.215 Credit evaluation.
4279.216 Environmental responsibilities.
4279.217 Oversight and monitoring.
4279.218-4279.219 [Reserved]

Conditions of Guarantee

4279.220 General conditions of guarantee.
4279.221 Rights and liabilities.
4279.222 Payments.
4279.223 Sale or assignment of guaranteed loan.
4279.224 Minimum retention.
4279.225 Repurchase from Holder.
4279.226 Replacement of document.
4279.227 Equal Credit Opportunity Act.
4279.228-4279.230 [Reserved]

Loan Processing

4279.231 Fees.
4279.232 Guaranteed loan funding.
4279.233 Interest rates.
4279.234 Terms of loan.
4279.235 Collateral.
4279.236-4279.242 [Reserved]
4279.243 Insurance.
4279.244 Appraisals.
4279.245 Personal and corporate guarantees.
4279.246-4279.255 [Reserved]
4279.256 Construction planning and performing development.
4279.257-4279.258 [Reserved]
4279.259 Borrower responsibilities.

Applications

4279.260 Guarantee applications--general.
4279.261 Application for loan guarantee content.
4279.262-4279.264 [Reserved]
4279.265 Guarantee application processing.
4279.266 Guarantee application scoring.
4279.267 Selecting guarantee applications.
4279.268-4279.277 [Reserved]
4279.278 Loan approval and obligating funds.
4279.279 Transfer of Lenders.
4279.280 Changes in Borrowers.
4279.281 Conditions precedent to issuance of Loan Note Guarantee.
4279.282 [Reserved]
4279.283 Refusal to execute Loan Note Guarantee.
4279.284-4279.289 [Reserved]
4279.290 Requirements after Project construction.
4279.291-4279.299 [Reserved]
4279.300 OMB control number.

Subpart C--Biorefinery, Renewable Chemical, and Biobased Product 
Manufacturing Assistance Loans

General


Sec.  4279.201  Purpose and scope.

    The purpose of the Biorefinery, Renewable Chemical, and Biobased 
Product Manufacturing Program is to assist in the development of new 
and emerging technologies for the development of Advanced Biofuels, 
Renewable Chemicals, and Biobased Product Manufacturing. This is 
achieved through guarantees for loans made to fund the development, 
construction, and Retrofitting of Commercial-Scale Biorefineries using 
Eligible Technology and of Biobased Product Manufacturing facilities 
that use Technologically New Commercial-Scale processing and 
manufacturing equipment and required facilities to convert Renewable 
Chemicals and other biobased outputs of Biorefineries into end-user 
products on a Commercial Scale.
    (a) This subpart and subpart D of part 4287 of this chapter contain 
the regulations for this Program.
    (b) The Lender is responsible for ascertaining that all 
requirements for making, securing, servicing, and collecting the loan 
are complied with.
    (c) Whether specifically stated or not, whenever Agency approval is 
required, it must be in writing.
    (d) Copies of all forms, regulations, and instructions referenced 
in this subpart are available in any Agency office and from the USDA 
Rural Development Web site at http://www.rd.usda.gov/programs-services/biorefinery-assistance-program. Whenever a form is designated in this 
subpart, it is initially capitalized and its reference includes 
predecessor and successor forms, if applicable.


Sec.  4279.202  Definitions and abbreviations.

    Terms used in this subpart are defined in this section. Terms used 
in this subpart that have the same meaning

[[Page 36426]]

as the terms defined in this section have been capitalized in this 
subpart.
    Administrator. The Administrator of Rural Business-Cooperative 
Service within the Rural Development mission area of the U.S. 
Department of Agriculture.
    Advanced biofuel. Fuel derived from Renewable Biomass, other than 
corn kernel starch, to include:
    (1) Biofuel derived from cellulose, hemicellulose, or lignin;
    (2) Biofuel derived from sugar and starch (other than ethanol 
derived from corn kernel starch);
    (3) Biofuel derived from waste material, including crop residue, 
other vegetative waste material, animal waste, food waste, and yard 
waste;
    (4) Diesel-equivalent fuel derived from Renewable Biomass, 
including vegetable oil and animal fat;
    (5) Biogas (including landfill gas and sewage waste treatment gas) 
produced through the conversion of organic matter from Renewable 
Biomass;
    (6) Butanol or other alcohols produced through the conversion of 
organic matter from Renewable Biomass; and
    (7) Other fuel derived from cellulosic biomass.
    Affiliate. An entity that is related to another entity by owning 
shares or having an interest in the entity, by common ownership, or by 
any means of control.
    Agency. The Rural Business-Cooperative Service or successor Agency 
assigned by the Secretary of Agriculture to administer the Program. 
References to the National or State Office should be read as prefaced 
by ``Agency'' or ``Rural Development'' as applicable.
    Agricultural producer. An individual or entity directly engaged in 
the production of agricultural products, including crops (including 
farming); livestock (including ranching); forestry products; 
hydroponics; nursery stock; or aquaculture, whereby 50 percent or 
greater of their gross income is derived from the operations.
    Annual renewal fee. A fee that is paid once a year by the Lender 
and is required to maintain the enforceability of the Loan Note 
Guarantee.
    Arm's length transaction. A transaction between ready, willing, and 
able disinterested parties that are not affiliated with or related to 
each other and have no security, monetary, or stockholder interest in 
each other.
    Assignment Guarantee Agreement. Form RD 4279-6, ``Assignment 
Guarantee Agreement,'' is the signed agreement between the Agency, the 
Lender, and the Holder containing the terms and conditions of an 
assignment of a guaranteed portion of a loan, using the single 
Promissory Note system.
    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.
    BAP. Biorefinery, Renewable Chemical, and Biobased Product 
Manufacturing Assistance Program.
    Biobased product. A product determined by the Secretary to be a 
commercial or industrial product (other than food or feed) that is 
either:
    (1) Composed, in whole or in significant part, of biological 
products, including renewable domestic agricultural materials and 
forestry materials; or
    (2) An intermediate ingredient or feedstock.
    Biobased product manufacturing. The use of Technologically New 
Commercial-Scale processing and manufacturing equipment and required 
facilities to convert Renewable Chemicals and other biobased outputs of 
Biorefineries into end-user products on a Commercial Scale.
    Biofuel. A fuel derived from Renewable Biomass.
    Biogas. Renewable Biomass converted to gaseous fuel.
    Biorefinery. A facility (including equipment and processes) that 
converts Renewable Biomass into Biofuels and Biobased Products and may 
produce electricity.
    Bond. A form of debt security in which the authorized issuer 
(Borrower) owes the Bond holder (Lender) a debt and is obligated to 
repay the principal and Interest (coupon) at a later date(s) 
(maturity). An explanation of the type of Bond and other Bond 
stipulations must be attached to the Bond issuance.
    Borrower. The Person that borrows, or seeks to borrow, money from 
the Lender, including any party liable for the loan except for 
guarantors.
    Byproduct. An incidental or secondary product generated under 
normal operations of the proposed Project that can be reasonably 
measured and monitored other than: Advanced Biofuel, Program-eligible 
Biobased Products including Renewable Chemicals, and Program-eligible 
end-user products produced by Biobased Product Manufacturing 
facilities. Byproducts may or may not have a readily identifiable 
commercial use or value.
    Calendar quarter. Four three-month periods in each calendar year as 
follows:
    (1) Quarter 1 begins on January 1 and ends on March 31;
    (2) Quarter 2 begins on April 1 and ends on June 30;
    (3) Quarter 3 begins on July 1 and ends on September 30; and
    (4) Quarter 4 begins on October 1 and ends on December 31.
    Collateral. The asset(s) pledged by the Borrower to secure the 
loan.
    Commercial-scale (commercial scale). An operation is considered to 
be a Commercial-Scale operation if it demonstrates that its sole or 
chief emphasis is on salability and profit and:
    (1) Its revenue will be sufficient to recover the full cost of the 
Project over its expected life and result in an anticipated annual rate 
of return sufficient to encourage investors or Lenders to provide 
funding for the Project;
    (2) 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);
    (3) Contracts for feedstock are adequate to address proposed off-
take; and
    (4) It has the ability to achieve market entry, suitable 
infrastructure to transport product to its market is available, and the 
technology and related products are generally competitive in the 
market.
    Conditional Commitment. Form RD 4279-3, ``Conditional Commitment,'' 
is the Agency's notice to the Lender that the loan guarantee it has 
requested is approved subject to the completion of all conditions and 
requirements set forth by the Agency and outlined in the attachment to 
the Conditional Commitment.
    Conflict of interest. A situation in which a Person has competing 
personal, professional, or financial interests that prevents the Person 
from acting impartially.
    Default. The condition that exists when a Borrower is not in 
compliance with the Promissory Note, the Loan Agreement, security 
documents, or other documents evidencing the loan. Default could be a 
monetary or non-monetary Default.
    Deficiency judgment. A monetary judgment rendered by a court of 
competent jurisdiction after foreclosure and liquidation of all 
Collateral securing the loan.
    Delinquency. A loan for which a scheduled loan payment is more than 
30 days past due and cannot be cured within 30 days.
    Eligible project costs. Those expenses approved by the Agency for 
the Project as set forth in Sec.  4279.210(d) and do not

[[Page 36427]]

include the costs set forth in Sec.  4279.210(e).
    Eligible technology. The term ``Eligible technology'' means, as 
determined by the Secretary:
    (1) A technology that is being adopted in a viable Commercial-Scale 
operation of a Biorefinery that produces an Advanced Biofuel; or
    (2) A technology not described in paragraph (1) of this definition 
that has been demonstrated to have Technical and Economic Potential for 
commercial application in a Biorefinery that produces an Advanced 
Biofuel.
    Fair market value. The price that could reasonably be expected for 
an asset in an Arm's-Length Transaction between a willing buyer and a 
willing seller under ordinary economic and business conditions.
    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 or consultants of the economic, market, technical, 
financial, and management feasibility of a proposed Project or business 
in terms of its expectation for success.
    Federal debt. Debt owed to the Federal government that is subject 
to collection under the Debt Collection Improvement Act of 1996, 31 
U.S.C. 3701 et seq. Once the Agency determines a debt is Federal Debt 
and provides notice to the Lender, that Federal Debt is excluded from 
Future Recovery.
    Future recovery. Funds anticipated to be collected by the Lender 
after a final loss claim is processed.
    Good cause. A justification representing a reasonable approach 
given:
    (1) The reasonably available alternatives;
    (2) All known relevant factors;
    (3) Program requirements; and
    (4) The best interests of the government. Good cause must be 
approved by the Agency. Without prior approval by the Agency, 
alternatives that require the Agency to increase its guarantee, in 
either the Conditional Commitment or Loan Note Guarantee (including an 
increase of its subsidy costs under the Credit Reform Act of 1990), or 
provide additional assistance, will not be considered reasonable 
available alternatives under paragraph (1) of this definition or in the 
best interests of the government under paragraph (4) of this 
definition.
    Grossly negligent loan origination. A serious carelessness in 
originating the loan which is so great as to appear to be conscious. 
The term includes not only the concept of a failure to act, but also 
not acting in a timely manner.
    Grossly negligent loan servicing. A serious carelessness in 
servicing the loan which is so great as to appear to be conscious. The 
term includes not only the concept of a failure to act, but also not 
acting in a timely manner.
    Guaranteed Loan Report of Loss. Form RD 449-30, ``Guaranteed Loan 
Report of Loss,'' used by Lenders when reporting a financial loss under 
an Agency guarantee.
    Holder. A Person, other than the Lender, who owns all or part of 
the guaranteed portion of the loan with no servicing responsibilities.
    Immediate family(ies). Individuals who live in the same household 
or who are closely related by blood, marriage, or adoption, such as a 
spouse, domestic partner, parent, child, sibling, aunt, uncle, 
grandparent, grandchild, niece, nephew, or cousin.
    Indian tribe. This term has the meaning as defined in 25 U.S.C. 
450b.
    In-house expenses. Expenses associated with activities that are 
routinely the responsibility of a Lender's internal staff or its 
agents. In-house expenses include, but are not limited to, employees' 
salaries, staff lawyers, travel, and overhead.
    Institution of higher education. This term has the meaning as 
defined in 20 U.S.C. 1002(a).
    Interest. A fee paid by a Borrower to a Lender as a form of 
compensation for the use of money. When money is borrowed, Interest is 
typically paid as a fee over a certain period of time (typically months 
or years) to the Lender as percentage of the principal amount owed. The 
term Interest does not include Default or penalty Interest or late 
payment fees or charges.
    Interest Termination Date. The date on which no further interest 
will be payable under the Loan Note Guarantee.
    (1) If the Lender owns all or a portion of the guaranteed interest 
in the guaranteed loan or makes a Protective Advance, then the Loan 
Note Guarantee will not cover Interest to the Lender accruing after 90 
days from the most recent Delinquency effective date as reported by the 
Lender.
    (2) If the guaranteed loan has a Holder(s), the Lender, or the 
Agency, at its sole discretion, will issue an interest termination 
letter to the Holder(s) establishing the termination date for Interest 
accrual. The Loan Note Guarantee will not cover Interest to the 
Holder(s) accruing after the greater of:
    (i) 90 days from the date of the most recent Delinquency effective 
date as reported by the Lender or
    (ii) 30 days from the date of the interest termination letter.
    Lender. The entity approved, or seeking to be approved, by the 
Agency to make, service, and collect the Agency guaranteed loan that is 
subject to this subpart.
    Lender's Agreement. Form RD 4279-4, ``Lender's Agreement,'' or 
predecessor form, between the Agency and the Lender setting forth the 
Lender's loan responsibilities.
    Liquidation expenses. Costs directly associated with the 
liquidation of Collateral, including preparing Collateral for sale 
(e.g., repairs and transport) and conducting the sale (e.g., 
advertising, public notices, auctioneer expenses, and foreclosure 
fees). Liquidation Expenses do not include In-House Expenses. Legal/
attorney fees are considered Liquidation Expenses provided that the 
fees are reasonable, as determined by the Agency, and cover legal 
issues pertaining to the liquidation that could not be properly handled 
by the Lender and its in-house counsel.
    Loan agreement. The agreement between the Borrower and Lender 
containing the terms and conditions of the loan and the 
responsibilities of the Borrower and Lender.
    Loan classification. The process by which loans are examined and 
categorized by degree of potential loss in the event of Default.
    Loan Note Guarantee. Form RD 4279-5, ``Loan Note Guarantee,'' or 
predecessor form, issued and executed by the Agency containing the 
terms and conditions of the guarantee.
    Loan packager. A Person, other than the applicant Borrower or 
Lender, that prepares a loan application package.
    Loan service provider. A Person, other than the Lender of record, 
that provides loan servicing activities to the Lender.
    Local government. A county, municipality, town, township, village, 
or other unit of general government below the State level, or Indian 
Tribe governments.
    Local owner. An individual who owns any portion of an eligible 
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.
    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.

[[Page 36428]]

    Material adverse change. Any change in circumstance associated with 
a guaranteed loan, including the Borrower's financial condition or 
Collateral that could be reasonably expected to jeopardize loan 
performance.
    NAD. National Appeals Division, or successor agency, in the United 
States Department of Agriculture.
    Negligent Loan Origination. The failure to perform those actions 
which a reasonably prudent lender would perform in originating its own 
portfolio of loans that are not guaranteed. The term includes not only 
the concept of a failure to act but also acting in a manner contrary to 
the manner in which a reasonably prudent lender would act.
    Negligent Loan Servicing. The failure to perform those services 
which a reasonably prudent lender would perform in servicing (including 
liquidation of) its own portfolio of loans that are not guaranteed. The 
term includes not only the concept of a failure to act, but also 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 including Renewable 
Chemicals, Biobased Product Manufacturing end-user products, and 
electricity produced by the Borrower to another party.
    Parity. A lien position whereby two or more Lenders share a 
security interest of equal priority in Collateral.
    Participate. Sale of an interest in a loan by the lead Lender to 
one or more Lenders wherein the lead Lender retains the Promissory 
Note, Collateral securing the Promissory Note, and all responsibility 
for managing and servicing the loan. Participants are dependent upon 
the lead Lender for protection of their interests in the loan.
    Person. An individual or entity.
    Program. Biorefinery Renewable Chemical, and Biobased Product 
Manufacturing Assistance Program often abbreviated as BAP.
    Project. The facility or portion of a facility receiving funding 
under this subpart.
    Pro rata. On a proportional basis.
    Promissory note. Evidence of debt with stipulated repayment terms. 
``Note'' or ``Promissory Note'' shall also be construed to include 
``Bond'' or other evidence of debt, where appropriate.
    Protective advance. An advance made by the Lender for the purpose 
of preserving and protecting the Collateral where the Borrower has 
failed to, and will not or cannot, meet its obligations to protect or 
preserve Collateral. Protective advances include, but are not limited 
to, advances affecting the Collateral made for property taxes, rent, 
hazard and flood insurance premiums, and annual assessments. Legal/
attorney fees are not a Protective Advance. Holders do not have an 
interest in Protective Advances.
    Public body. A municipality, county, or other political subdivision 
of a State; a special purpose district; or an Indian Tribe on a Federal 
or State reservation or other Federally-recognized Indian Tribe; or an 
organization controlled by any of the above. A Local Government would 
also be a Public Body.
    Renewable biomass. (1) 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:
    (i) 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;
    (ii) Would not otherwise be used for higher-value products; and
    (iii) Are harvested in accordance with applicable law and land 
management plans and the requirements for old-growth maintenance, 
restoration, and management direction of paragraphs (2), (3), and (4) 
of subsection (e) of section 102 of the Healthy Forests Restoration Act 
of 2003 (16 U.S.C. 6512) and large-tree retention of subsection (f) of 
section 102; or
    (2) Any organic matter that is available on a renewable or 
recurring basis from non-Federal land or land belonging to an Indian or 
Indian Tribe that is held in trust by the United States or subject to a 
restriction against alienation imposed by the United States, including:
    (i) Renewable plant material, including feed grains; other 
agricultural commodities; other plants and trees; and algae; and
    (ii) Waste material, including crop residue; other vegetative waste 
material (including wood waste and wood residues); animal waste and 
byproducts (including fats, oils, greases, and manure); and food waste 
and yard waste.
    Renewable chemical. A monomer, polymer, plastic, formulated 
product, or chemical substance produced from Renewable Biomass.
    Retrofitting. The modification of a building or equipment to 
incorporate functions not included in the original design.
    Rural Development. The mission area of USDA that is comprised of 
the Rural Business-Cooperative Service, Rural Housing Service, and 
Rural Utilities Service and is under the policy direction and 
operational oversight of the Under Secretary for Rural Development.
    Rural or rural area. See 7 U.S.C. 1991(a)(13)(A) and (D) et seq.
    Secretary. The Secretary of the Department of the Agriculture.
    Semi-work scale. A facility operating on a limited scale to provide 
final tests of a product or process.
    Spreadsheet. A table containing data from a series of financial 
statements of a business over a period of time. Financial statement 
analysis normally contains Spreadsheets for balance sheet and income 
statement items and includes a cash flow analysis and commonly used 
ratios. The Spreadsheets enable a reviewer to easily scan the data, 
spot trends, and make comparisons.
    State. Any of the 50 States of the U.S., the Commonwealth of Puerto 
Rico, the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth 
of the Northern Mariana Islands, the Republic of Palau, the Federated 
States of Micronesia, and the Republic of the Marshall Islands.
    Subordination. The reduction of the Lender's lien priority on 
certain assets pledged to secure payment of the guaranteed loan to a 
position junior to, or on Parity with, the lien position of another 
loan in order for the Borrower to obtain additional financing, not 
guaranteed by the Agency, from the Lender or a third party.
    Technologically New. New or significantly improved equipment, 
process or production method to deliver a product, or adoption of 
equipment, process or production method to deliver a new or 
significantly improved product, of which the first Commercial-Scale use 
in the United States is within the last five years and is used in not 
more than three Commercial-Scale facilities in the United States.
    Total project costs. The sum of all costs associated with a 
completed Project.
    Transfer and assumption. The conveyance by a Borrower to an 
assuming Borrower of the assets, Collateral, and liabilities of the 
loan in return for the assuming Borrower's binding promise to pay the 
outstanding loan debt approved by the Agency.
    USDA Lender Interactive Network Connection (LINC). The portal Web 
site currently at https://usdalinc.sc.egov.usda.gov/ used by Lenders to 
update loan data in the

[[Page 36429]]

Agency's Guaranteed Loan System. Current capabilities include loan 
closing and status reporting.
    Well capitalized. Federal Deposit Insurance Corporation (FDIC) 
requirements used to determine if a lending institution has enough 
capital on hand to withstand negative effects in the market, and which 
the Agency uses to determine Lender eligibility. The criteria are 
specified in the Federal Deposit Insurance Act, and are currently at 12 
CFR 325.103, or subsequent regulation.
    Working capital. Current assets available to support a business's 
operations. Working Capital is calculated as current assets less 
current liabilities.


Sec.  4279.203  Exception authority.

    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.  4279.204  Appeals.

    Borrowers, Lenders, and Holders have appeal or review rights for 
adverse Agency decisions made under this subpart. Adverse programmatic 
decisions based on clear and objective statutory or regulatory 
requirements are not appealable; however, such decisions are reviewable 
for appealability by the National Appeals Division (NAD). The Borrower, 
Lender, and Holder can appeal any Agency decision that directly and 
adversely impacts them. For an adverse decision that impacts the 
Borrower, the Lender and Borrower must jointly execute a written 
request for appeal for an alleged adverse decision made by the Agency. 
An adverse decision that only impacts the Lender may be appealed by the 
Lender only. An adverse decision that only impacts the Holder may be 
appealed by the Holder only. A decision by a Lender adverse to the 
interest of the Borrower is not a decision by the Agency, whether or 
not concurred in by the Agency. Appeals will be conducted by NAD and 
will be handled in accordance with 7 CFR part 11.


Sec.  4279.205  Prohibition under Agency programs.

    (a) No loan guaranteed by the Agency under this subpart will be 
conditioned on any requirement that the recipient(s) of such assistance 
accept or receive electric service from any particular utility, 
supplier, or cooperative.
    (b) No loan guaranteed by the Agency may be made with the proceeds 
of any obligation the Interest on which is excludable from income under 
26 U.S.C. 103 or a successor statute. Funds generated through the 
issuance of tax-exempt obligations may neither be used to purchase the 
guaranteed portion of any Agency guaranteed loan nor may an Agency 
guaranteed loan serve as Collateral for a tax-exempt issue. The Agency 
may guarantee a loan for a Project which involves tax-exempt financing 
only when the guaranteed loan funds are used to finance a part of the 
Project that is separate and distinct from the part which is financed 
by the tax-exempt obligation, and the guaranteed loan has at least a 
Parity security position with the tax-exempt obligation.
    (c) The Agency may not issue a guarantee for a loan where there may 
be, directly or indirectly, a Conflict of Interest or an appearance of 
a Conflict of Interest involving any action by the Agency.
    (d) The Agency may not guarantee lease payments.
    (e) The Agency may not guarantee loans made by other Federal 
agencies.


Sec.  4279.206  Agency representation.

    Notwithstanding any other provision of this subpart and 7 CFR part 
4287, subpart D, the Agency reserves the right to be represented by the 
U.S. Department of Justice in any litigation where the Agency is named 
as a party.


Sec.  4279.207  [Reserved]

Eligibility Requirements


Sec.  4279.208  Lender eligibility requirements.

    (a) 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 are eligible Lenders. The National Rural Utilities 
Cooperative Finance Corporation is also an eligible Lender. Savings and 
loan associations, mortgage companies, insurance companies, and other 
lenders not meeting the above criteria are not eligible.
    (b) The Lender must demonstrate that it meets the FDIC definition 
of Well Capitalized at the time of application and at time of issuance 
of the Loan Note Guarantee. This information may be identified in FDIC 
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 its levels and provide them to the 
Agency.
    (c) The Lender must not be debarred or suspended by the Federal 
government.
    (d) If the Lender is under a cease-and-desist order, or similar 
constraint, from a Federal or State 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 
or similar constraint, as applicable.
    (e) The Agency will only approve loan guarantees for Lenders with 
adequate experience and expertise, from similar projects, to make, 
secure, service, and collect loans approved under this subpart.


Sec.  4279.209  Borrower eligibility requirements.

    (a) Eligible entities. To be eligible, a Borrower must meet the 
requirements specified in paragraphs (a)(1) and (2) of this section.
    (1) Type of Borrower. A Borrower must be an individual; an entity; 
an Indian Tribe; or a unit of State or Local Government, including a 
corporation; a Farm Cooperative; a Farmer Cooperative Organization; an 
Association of Agricultural Producers; a National Laboratory; an 
Institution of Higher Education; a rural electric cooperative; a public 
power entity; or a consortium of any of the above entities.
    (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 Project 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.  4279.210  Project eligibility requirements.

    (a) The Project must be located in a State.

[[Page 36430]]

    (b) The Project must be for either:
    (1) The development, construction, and Retrofitting of 
Technologically New Commercial-Scale processing and manufacturing 
equipment and required facilities that will be used to convert 
Renewable Chemicals and other biobased outputs of Biorefineries into 
end-user products on a Commercial Scale; or
    (2) The development, construction, or Retrofitting of a Commercial-
Scale Biorefinery using Eligible Technology.
    (c) The Borrower and other principals involved in the Project must 
make a significant equity investment in the Project in the form of cash 
contribution. Equity does not include loans to the Project. The Agency 
will evaluate the adequacy of equity in its credit evaluation in 
accordance with Sec.  4279.215(b).
    (d) Eligible Project Costs are only those costs associated with the 
items listed in paragraphs (d)(1) through (9) of this section, as long 
as the items are assets owned by the Borrower or expenses incurred by 
the Borrower and the items are an integral and necessary part of the 
Project, as determined by the Agency. A Project may consist of multiple 
facilities or components located at multiple locations.
    (1) Purchase and installation of equipment (new, refurbished, or 
remanufactured), including an integrated demonstration unit if the 
integrated demonstration unit will be used by the Borrower in the 
Project after the Project is developed and in operation.
    (2) New construction or Retrofitting of existing facilities 
including reasonable contingency reserves, land acquisition, site 
improvements and development, and associated costs such as surveys, 
title insurance, title fees, and recording or transfer fees.
    (3) Permit and license fees and fees and charges for professional 
services. Professional services are those rendered by entities 
generally licensed or certified by States or accreditation 
associations, such as architects, engineers, accountants, attorneys, or 
appraisers, and those rendered by Loan Packagers (excluding finders 
fees). The Borrower may pay fees for professional services needed for 
planning and developing a Project provided that the amounts are 
reasonable and customary in the area. Professional fees may be included 
as an eligible use of loan proceeds.
    (4) Working Capital.
    (5) Cost of necessary insurance and bonds.
    (6) Cost of financing, including capitalized Interest during 
construction period, legal fees, transaction costs, and customary fees 
charged by the lender, excluding the guaranteed loan fee and annual 
renewal fees.
    (7) Cash reserve accounts required by the Lender or Agency, such as 
a debt service reserve account.
    (8) Any other item identified by the Agency in a notice published 
in the Federal Register.
    (9) The Agency will consider refinancing only under either of the 
two conditions specified in paragraphs (d)(9)(i) and (ii) of this 
section.
    (i) 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 Project.
    (ii) 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.
    (e) Ineligible Project costs include:
    (1) Distribution or payment to an individual owner, partner, 
stockholder, or beneficiary of the Borrower or a close relative of such 
an individual when such individual will retain any portion of the 
ownership of the Borrower;
    (2) Any line of credit;
    (3) Any equipment, processes, and related costs of such equipment 
used for processing corn kernel starch into biofuel, including as an 
incidental or secondary product; and
    (4) Payment in excess of actual costs (such as profit, overhead, 
and indirect costs) incurred by the contractor or other service 
provider on a contract or agreement that has been entered into at less 
than an Arm's Length Transaction or with an appearance of or a 
potential for Conflict of Interest.


Sec. Sec.  4279.211-4279.213   [Reserved]

Lender Functions and Responsibilities


Sec.  4279.214  General functions and responsibilities.

    (a) The Lender has the primary responsibility for loan origination 
and servicing. 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. The Lender may contract for 
services and may rely on certain written materials (including, but not 
limited to, certifications, evaluations, appraisals, financial 
statements and other reports) to be provided by the Borrower or other 
qualified third parties (including, among others, one or more 
independent engineers, appraisers, accountants, consultants or other 
experts.) The Lender is ultimately responsible for underwriting, loan 
origination, loan servicing, and compliance with all Agency 
regulations.
    (b) Agents and Persons are prohibited from acting as both Loan 
Packager and Loan Service Provider on the same guaranteed loan.
    (c) All Lenders obtaining or requesting a Program loan guarantee 
are responsible for:
    (1) Processing applications for guaranteed loans. The Lender is 
responsible for submitting a complete application for each guaranteed 
loan requested;
    (2) Developing and maintaining adequately documented loan files, 
which must be maintained for at least 3 years after the final loss has 
been paid;
    (3) Recommending only loan proposals that are eligible and 
financially feasible;
    (4) Properly closing the loan and obtaining valid evidence of debt 
and Collateral in accordance with sound lending practices prior to 
disbursing loan proceeds;
    (5) Keeping an inventory accounting of all Collateral items and 
reconciling the inventory of all Collateral sold during loan servicing, 
including liquidation;
    (6) Supervising construction;
    (7) Distributing loan funds;
    (8) Servicing guaranteed loans in a reasonable manner, including 
liquidation if necessary;
    (9) Following Agency regulations and agreements;
    (10) Obtaining Agency approvals or concurrence as required; and
    (11) Reporting all Conflicts of Interest, or appearances thereof, 
to the Agency.


Sec.  4279.215  Credit evaluation.

    (a) Lenders must analyze all credit factors associated with each 
proposed loan and apply its professional judgment to determine that the 
credit factors, considered in combination, to ensure loan repayment. 
The Lender must have an adequate underwriting process to ensure that 
loans are reviewed by someone other than the originating officer. The 
Agency will only guarantee loans that are financially sound and 
feasible with reasonable assurance of repayment.
    (b) In its credit evaluation, the Agency will consider the 
following factors:
    (1) The feasibility of the Project and Borrower and likelihood that 
the Project and Borrower will produce sufficient revenues to service 
the Project's debt

[[Page 36431]]

obligations over the life of the loan guarantee and result in 
sufficient returns to investors;
    (2) Project and Borrower debt structure and characteristics and 
debt repayment ability;
    (3) Revenues of the Project and Borrower, strength and duration of 
off-take contracts and counterparty agreements, market demand and 
competitive position;
    (4) Technical feasibility, demonstrated performance of the 
technology and readiness to commercialize the technology;
    (5) Ownership structure of the Project and Borrower, strength of 
ownership and sponsors, commitment and amount of equity investment from 
ownership, sponsors and other equity investors;
    (6) Operational management and experience;
    (7) Complexity of construction/completion, terms of construction 
contracts, experience and financial strength of the construction 
contractor or engineering, procurement, and construction (EPC) 
contractor;
    (8) Availability and depth of resource/feedstock market, strength 
and duration of purchase agreements, and availability of substitutes;
    (9) Contracts and intellectual property rights, and state and local 
regulations;
    (10) Energy, infrastructure and environmental considerations;
    (11) The extent to which Project Costs are funded by the guaranteed 
loan or other Federal and non-Federal governmental assistance such as 
grants, tax credits, or other loan guarantees;
    (12) Economic safeguards of the Project including contingency 
reserve funds and protections and safeguards provided to the Agency and 
Lender in the event of default through loan collateral and ownership 
and sponsorship guarantors, and;
    (13) Other criteria that the Agency deems relevant.


Sec.  4279.216  Environmental responsibilities.

    Lenders are responsible for becoming familiar with Federal 
environmental requirements; considering, in consultation with the 
prospective Borrower, the potential environmental impacts of their 
proposals at the earliest planning stages; and developing proposals 
that minimize the potential to adversely impact the environment.
    (a) Lenders must alert the Agency to any environmental issues 
related to a proposed Project or items that may require extensive 
environmental review.
    (b) Lenders must ensure that the Borrower has:
    (1) 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, and has 
completed Form RD 1940-20, ``Request for Environmental Information,'' 
and Exhibit H ``Environmental Assessment for Class II Actions'' (when 
required by 7 CFR part 1940, subpart G);
    (2) Complied with any mitigation measures required by the Agency; 
and
    (3) 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.
    (c) Lenders must 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 issues.


Sec.  4279.217  Oversight and monitoring.

    The Lender must permit representatives of the Agency (or other 
agencies of the United States) to inspect and make copies of any 
records of the Lender pertaining to Program guaranteed loans during 
regular office hours of the Lender or at any other time upon agreement 
between the Lender and the Agency. In addition, the Lender must 
cooperate fully with Agency oversight and monitoring of all Lenders 
involved in any manner with any loan guarantee under this 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.  4287.307(d) of this chapter).


Sec. Sec.  4279.218-4279.219  [Reserved]

Conditions of Guarantee


Sec.  4279.220  General conditions of guarantee.

    A loan guarantee under this part will be evidenced by a Loan Note 
Guarantee issued by the Agency. Each Lender will execute a Lender's 
Agreement. If a valid Lender's Agreement already exists, it is not 
necessary to execute a new Lender's Agreement with each loan guarantee. 
The provisions of this part and 7 CFR part 4287, subpart D will apply 
to all outstanding guarantees. In the event of a conflict between the 
guaranteed loan documents and these regulations as they exist at the 
time the documents are executed, the regulations will control.
    (a) Full faith and credit. (1) A guarantee under this subpart 
constitutes an obligation supported by the full faith and credit of the 
United States and is incontestable except for fraud or 
misrepresentation of which a Lender or Holder has actual knowledge at 
the time it becomes such Lender or Holder or which a Lender or Holder 
participates in or condones.
    (2) The guarantee will be unenforceable to the extent that any loss 
is occasioned by:
    (i) A provision for Interest on Interest, Default or penalty 
Interest, or late payment fees;
    (ii) The violation of usury laws;
    (iii) Use of loan proceeds for unauthorized purposes or to the 
extent that loan funds are used for purposes other than those 
specifically approved by the Agency in its Conditional Commitment;
    (iv) Failure to obtain or maintain the required security regardless 
of the time at which the Agency acquires knowledge thereof; and
    (v) Negligent Loan Origination or Negligent Loan Servicing unless 
otherwise determined under paragraph (d) of this section.
    (3) The Agency will guarantee payment as follows:
    (i) To any Holder, 100 percent of any loss sustained by the Holder 
on the guaranteed portion of the loan it owns and Interest through the 
Interest Termination Date due on such portion.
    (ii) To the Lender, subject to the provisions of this part and 
subpart D of part 4287 of this chapter, the lesser of:
    (A) Any loss sustained by the Lender on the guaranteed portion, 
including principal and Interest, through the Interest Termination 
Date, evidenced by the notes or assumption agreements and secured 
advances for protection and preservation of Collateral made with the 
Agency's authorization; or
    (B) The guaranteed principal advanced to or assumed by the Borrower 
and any Interest due thereon through the Interest Termination Date.
    (b) Credit quality of Borrower. The Agency will provide guarantees 
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) Quality of loan. All loans guaranteed under this subpart must 
be financially sound and feasible, with reasonable assurance of 
repayment.
    (d) Gross negligence. Upon written request of the Lender, the 
Agency will consider changing the negligence standard to Grossly 
Negligent Loan Origination and Grossly Negligent Loan

[[Page 36432]]

Servicing on a case-by-case basis. The Lender must establish to the 
Agency's satisfaction that changing to the gross negligence standard 
does not materially impair the Agency's interests, solely at the 
Agency's discretion, subject to:
    (1) The lender has demonstrated capacity and experience in making 
and servicing loans of similar amounts and for transactions of 
comparable complexity;
    (2) The Agency's review of the Lender's underwriting, loan approval 
and loan servicing policies and procedures, and;
    (3) The Agency's review of the Lender's loan servicing plan.


Sec.  4279.221  Rights and liabilities.

    When a guaranteed portion of a loan is sold to a Holder, the Holder 
will succeed to all rights of the Lender under the Loan Note Guarantee 
to the extent of the portion purchased.
    (a) The Lender will remain bound to all obligations under the Loan 
Note Guarantee, Lender's Agreement, and the Agency Program regulations.
    (b) 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.
    (c) The Lender must 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.


Sec.  4279.222  Payments.

    A Lender will receive all payments of principal and Interest on 
account of the entire loan and must promptly remit to the Holder its 
Pro Rata share of any payment within 30 days of the Lender's receipt 
thereof from the Borrower, determined according to its respective 
interest in the loan, less only the Lender's servicing fee.


Sec.  4279.223  Sale or assignment of guaranteed loan.

    The Lender may Participate or sell all or part of the guaranteed 
portion of the loan or retain the entire loan. The Lender must fully 
disburse and properly close a loan prior to sale of any portion of the 
Promissory Note(s). The Lender cannot Participate or sell any amount of 
the guaranteed or unguaranteed portion of the loan to the Borrower or 
its parent, subsidiary or Affiliate or to officers, directors, 
stockholders, other owners, or members of their Immediate Families. The 
Lender cannot share any premium received from the sale of a guaranteed 
loan in the secondary market with a Loan Packager or other Loan Service 
Provider. The participating Lenders and Holders and the Borrower can 
have no rights or obligations to one another. If the Lender desires to 
market all or part of the guaranteed portion of the loan at or 
subsequent to loan closing, such loan must not be in Default. Lenders 
may use either the single Promissory Note or multi-note system as 
outlined in paragraphs (a) and (b) of this section.
    (a) Single note system. The entire loan is evidenced by one 
Promissory Note, and one Loan Note Guarantee is issued. When the loan 
is evidenced by one Promissory Note, the Lender may not at a later date 
cause any additional notes to be issued.
    (1) The Lender may assign all or part of the guaranteed portion of 
the loan to one or more Holders by using the Assignment Guarantee 
Agreement. The Lender must retain title to the Promissory Note. The 
Lender must complete and execute the Assignment Guarantee Agreement and 
return it to the Agency for execution prior to Holder execution.
    (2) A Holder, upon written notice to the Lender and the Agency, may 
reassign the unpaid guaranteed portion of the loan, in full, sold under 
the Assignment Guarantee Agreement. Holders may only reassign the 
guaranteed portion in the complete block they have received and cannot 
subdivide or further split the guaranteed portion of a loan or retain 
an Interest strip.
    (3) Upon notification and completion of the assignment through the 
use of the Assignment Guarantee Agreement, the assignee shall succeed 
to all rights and obligations of the Holder thereunder. Subsequent 
assignments require notice to the Lender and Agency using any format, 
including that used by the Bond Market Association, together with the 
transfer of the original Assignment Guarantee Agreement.
    (4) The Agency will neither execute a new Assignment Guarantee 
Agreement to effect a subsequent reassignment nor reissue a duplicate 
Assignment Guarantee Agreement unless:
    (i) The original was lost, stolen, destroyed, mutilated, or 
defaced; and
    (ii) The reissue is in accordance with Sec.  4279.226.
    (5) The Assignment Guarantee Agreement clearly states the 
percentage and corresponding amount of the guaranteed portion it 
represents and the Lender's servicing fee. A servicing fee may be 
charged by the Lender to a Holder and is calculated as a percentage per 
annum of the unpaid balance of the guaranteed portion of the loan 
assigned by the Assignment Guarantee Agreement. The Agency is not and 
will not be a party to any contract between the Lender and another 
party where the Lender sells its servicing fee in an Arm's Length 
Transaction. The Agency will not acknowledge, approve, or have any 
liability to any of the parties of such contract.
    (b) Multi-note system. Under this option, the Lender may provide 
multiple Promissory Notes for the unguaranteed and the guaranteed 
portions of the loan. All Promissory Notes must reflect the same 
payment terms. When the Lender selects this option, the Holder will 
receive one of the Borrower's executed notes and a Loan Note Guarantee. 
The Agency will issue a Loan Note Guarantee for each Promissory Note, 
including the unguaranteed Promissory Note(s), to be attached to the 
Promissory Note(s). An Assignment Guarantee Agreement will not be used 
when the multi-note option is utilized.


Sec.  4279.224  Minimum retention.

    The Lender is required to hold a minimum of 7.5 percent of the 
total loan amount. The amount required to be held must be of the 
unguaranteed portion of the loan and cannot be Participated to another 
Person. The Agency may reduce the minimum retention below 7.5 percent 
on a case by case basis when the Lender establishes to the Secretary's 
satisfaction that reduction of the minimum retention percentage is to 
meet compliance with the Lender's regulatory authority. The Lender must 
retain interest in the Collateral, and retain the servicing 
responsibilities for the guaranteed loan.


Sec.  4279.225  Repurchase from Holder.

    (a) Repurchase by Lender. A Lender has the option to repurchase the 
unpaid guaranteed portion of the loan from a Holder within 30 days of 
written demand by the Holder when the Borrower is in Default not less 
than 60 days on principal or Interest due on the loan; or when the 
Lender has failed to remit to the Holder its Pro Rata share of any 
payment within 30 days of the Lender's receipt thereof from the 
Borrower. The repurchase by the Lender will be for an amount equal to 
the unpaid guaranteed portion of principal and accrued Interest less 
the Lender's servicing fee. The Holder must concurrently send a copy of 
the demand

[[Page 36433]]

letter to the Agency. The Lender must accept an assignment without 
recourse from the Holder upon repurchase. The Lender is encouraged to 
repurchase the loan, upon written demand from the Holder, to facilitate 
the accounting of funds, resolve any loan problem, and resolve the 
Default, where and when reasonable. The benefit to the Lender is that 
it may re-sell the guaranteed portion of the loan in order to continue 
collection of its servicing fee if the Default is cured. The Lender 
must notify, in writing, the Holder and the Agency of its decision.
    (b) Agency repurchase. (1) The Lender's servicing fee will stop on 
the date that Interest was last paid by the Borrower when the Agency 
purchases the guaranteed portion of the loan from a Holder. The Lender 
cannot charge such servicing fee to the Agency and must apply all loan 
payments and Collateral proceeds received to the guaranteed and 
unguaranteed portions of the loan on a Pro Rata basis.
    (2) If the Agency repurchases 100 percent of the guaranteed portion 
of the loan, the Agency will not continue collection of the Annual 
Renewal Fee from the Lender.
    (3) If the Lender does not repurchase the unpaid guaranteed portion 
of the loan as provided in paragraph (a) of this section, the Agency 
will purchase from the Holder the unpaid principal balance of the 
guaranteed portion together with accrued Interest to date of repurchase 
or the Interest Termination Date, whichever is sooner, less the 
Lender's servicing fee, within 30 days after written demand to the 
Agency from the Holder.
    (4) When Lender has accelerated the account, and subject to the 
expiration of any forbearance or workout agreement, the Lender, or the 
Agency at its sole discretion, must issue a letter to the Holder(s) 
establishing the Interest Termination Date. Accrued Interest to be paid 
to the Holder(s) will be calculated from the date Interest was last 
paid on the loan with a termination date not to exceed the Interest 
Termination Date.
    (5) When the Lender has accelerated the account and the Lender 
holds all or a portion of the guaranteed loan, an estimated loss claim 
(loan in the liquidation process) must be filed by the Lender with the 
Agency within 60 days. Accrued Interest paid to the Lender will be 
calculated from the date Interest was last paid on the loan to the 
Interest Termination Date.
    (6) The Holder's demand to the Agency must include a copy of the 
written demand made upon the Lender. The Holder must also include 
evidence of its right to require payment from the Agency. Such evidence 
must consist of either the original of the Loan Note Guarantee properly 
endorsed to the Agency or the original of the Assignment Guarantee 
Agreement properly assigned to the Agency without recourse including 
all rights, title, and interest in the loan. When the single-note 
system is utilized and the initial Holder has sold its interest, the 
current Holder must present the original Assignment Guarantee Agreement 
and an original of each Agency approved reassignment document in the 
chain of ownership, with the latest reassignment being assigned to the 
Agency without recourse, including all rights, title, and interest in 
the guarantee. The Holder must include in its demand the amount due 
including unpaid principal, unpaid Interest to date of demand, and 
Interest subsequently accruing from date of demand to proposed payment 
date. The Agency will be subrogated to all rights of the Holder.
    (7) Upon request by the Agency, the Lender must furnish within 30 
days of such request a current statement certified by an appropriate 
authorized officer of the Lender of the unpaid principal and Interest 
then owed by the Borrower on the loan and the amount then owed to any 
Holder, along with the information necessary for the Agency to 
determine the appropriate amount due the Holder. Any discrepancy 
between the amount claimed by the Holder and the information submitted 
by the Lender must be resolved between the Lender and the Holder before 
payment will be approved. Such conflict will suspend the running of the 
30 day payment requirement.
    (8) Purchase by the Agency neither changes, alters, nor modifies 
any of the Lender's obligations to the Agency arising from the loan or 
guarantee nor does it waive any of Agency's rights against the Lender. 
The Agency will have the right to set-off against the Lender all rights 
inuring to the Agency as the Holder of the instrument against the 
Agency's obligation to the Lender under the guarantee.
    (c) Repurchase for servicing. If the Lender, Borrower, and Holder 
are unable to agree to restructuring of loan repayment, Interest rate, 
or loan terms to resolve any loan problem or resolve the Default and 
repurchase of the guaranteed portion of the loan is necessary to 
adequately service the loan, the Holder must sell the guaranteed 
portion of the loan to the Lender for an amount equal to the unpaid 
principal and Interest on such portion less the Lender's servicing fee. 
The Lender must not repurchase from the Holder for arbitrage or other 
purposes to further its own financial gain. Any repurchase must only be 
made after the Lender obtains the Agency's written approval. If the 
Lender does not repurchase the guaranteed portion from the Holder, the 
Agency may, at its option, purchase such guaranteed portion for 
servicing purposes.


Sec.  4279.226  Replacement of document.

    (a) The Agency may issue a replacement Loan Note Guarantee or 
Assignment Guarantee Agreement which was lost, stolen, destroyed, 
mutilated, or defaced to the Lender or Holder upon receipt of an 
acceptable certificate of loss and an indemnity bond.
    (b) When a Loan Note Guarantee or Assignment Guarantee Agreement is 
lost, stolen, destroyed, mutilated, or defaced while in the custody of 
the Lender or Holder, the Lender must coordinate the activities of the 
party who seeks the replacement documents and must submit the required 
documents to the Agency for processing. The requirements for 
replacement are as follows:
    (1) A certificate of loss, notarized and containing a jurat, which 
includes:
    (i) Name and address of owner;
    (ii) Name and address of the Lender of record;
    (iii) Capacity of Person certifying;
    (iv) Full identification of the Loan Note Guarantee or Assignment 
Guarantee Agreement including the name of the Borrower, the Agency's 
case number, date of the Loan Note Guarantee or Assignment Guarantee 
Agreement, face amount of the evidence of debt purchased, date of 
evidence of debt, present balance of the loan, percentage of guarantee, 
and, if an Assignment Guarantee Agreement, the original named Holder 
and the percentage of the guaranteed portion of the loan assigned to 
that Holder. Any existing parts of the document to be replaced must be 
attached to the certificate;
    (v) A full statement of circumstances of the loss, theft, 
destruction, defacement, or mutilation of the Loan Note Guarantee or 
Assignment Guarantee Agreement; and
    (vi) For the Holder, evidence demonstrating current ownership of 
the Loan Note Guarantee and Promissory Note or the Assignment Guarantee 
Agreement. If the present Holder is not the same as the original 
Holder, a copy of the endorsement of each successive Holder in the 
chain of transfer from the initial Holder to present Holder must be 
included. If copies of the endorsement cannot be obtained, best 
available

[[Page 36434]]

records of transfer must be submitted to the Agency (e.g., order 
confirmation, canceled checks, etc.).
    (2) An indemnity bond acceptable to the Agency must accompany the 
request for replacement except when the Holder is the United States, a 
Federal Reserve Bank, a Federal corporation, a State or territory, or 
the District of Columbia. The indemnity bond must be with surety except 
when the outstanding principal balance and accrued Interest due the 
present Holder is less than $1 million verified by the Lender in 
writing in a letter of certification of balance due. The surety must be 
a qualified surety company holding a certificate of authority from the 
Secretary of the Treasury and listed in Treasury Department Circular 
570.
    (3) All indemnity bonds must be issued and payable to the United 
States of America acting through the Agency. The bond must be in an 
amount not less than the unpaid principal and Interest. The bond must 
hold the Agency harmless against any claim or demand that might arise 
or against any damage, loss, costs, or expenses that might be sustained 
or incurred by reasons of the loss or replacement of the instruments.
    (4) In those cases where the guaranteed loan was closed under the 
provision of the multi-note system, the Agency will not attempt to 
obtain, or participate in the obtaining of, replacement Promissory 
Notes from the Borrower. The Holder is responsible for bearing the 
costs of Promissory Note replacement if the Borrower agrees to issue a 
replacement instrument. Should such Promissory Note be replaced, the 
terms of the Promissory Note cannot be changed. If the evidence of debt 
has been lost, stolen, destroyed, mutilated or defaced, such evidence 
of debt must be replaced before the Agency will replace any 
instruments.


Sec.  4279.227  Equal Credit Opportunity Act.

    In accordance with the Equal Credit Opportunity Act (15 U.S.C. 
1691, et seq.), with respect to any aspect of a credit transaction, 
neither the Lender nor the Agency will discriminate against any 
applicant on the basis of race, color, religion, national origin, sex, 
marital status or age (providing the applicant has the capacity to 
contract), or because all or part of the applicant's income derives 
from a public assistance program, or because the applicant has, in good 
faith, exercised any right under the Consumer Protection Act. The 
Lender must comply with the requirements of the Equal Credit 
Opportunity Act as contained in the Federal Reserve Board's Regulation 
implementing that Act (see 12 CFR part 202) prior to loan closing.


Sec. Sec.  4279.228--4279.230  [Reserved]

Loan Processing


Sec.  4279.231  Fees.

    (a) Guarantee fee. The guarantee fee is 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 (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 Eligible 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 Eligible 
Project Costs.
    (iii) One percent for guarantees on loans of 65 percent or less of 
total Eligible Project Costs.
    (b) Annual Renewal Fee. The Annual Renewal Fee, which may be passed 
on to the Borrower, is paid by the Lender to the Agency for as long as 
the guarantee is outstanding and is payable during the construction 
period.
    (1) The amount of the annual renewal fee is calculated by the 
outstanding principal loan balance as of December 31 of each year 
multiplied by the Annual Renewal Fee rate, multiplied by the percent of 
guarantee. The rate is the rate in effect at the time the loan is 
obligated, and will remain in effect for the life of the loan.
    (2) The Annual Renewal Fee is paid once a year and is required to 
maintain the enforceability of the guarantee as to the lender. Annual 
Renewal Rees are due on January 31. Payments not received by April 1 
are considered delinquent and, at the Agency's discretion, may result 
in cancellation of the guarantee to the lender. Holders' rights will 
continue in effect as specified in the Loan Note Guarantee and 
Assignment Guarantee Agreement. Any delinquent Annual Renewal Fees will 
bear interest at the note rate and will be deducted from any loss 
payment due the lender. For loans where the Loan Note Guarantee is 
issued between October 1 and December 31, the first Annual Renewal Fee 
payment will be due January 31 of the second year following the date 
the Loan Note Guarantee was issued.
    (3) When the Agency repurchases 100 percent of the guaranteed 
portion of the loan, the Agency will not continue collection of the 
Annual Renewal Fee.
    (4) Unless otherwise specified by the Agency in a notice published 
in the Federal Register, the Annual Renewal Fee rate will be as 
follows:
    (i) One hundred basis points (1 percent) for guarantees on loans 
that were originally greater than 75 percent of total Eligible Project 
Costs.
    (ii) 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 Eligible Project Costs.
    (iii) Fifty basis points (0.50 percent) for guarantees on loans 
that were originally for 65 percent or less of Total Eligible Project 
Costs.
    (c) Routine Lender fees. The Lender may establish charges and fees 
for the loan provided they are similar to those normally charged other 
applicants for the same type of loan in the ordinary course of 
business, and these fees are an eligible use of loan proceeds. The 
Lender must document such routine fees on Form RD 4279-1, ``Application 
for Loan Guarantee.'' The Lender may charge prepayment penalties and 
late payment fees that are stipulated in the loan documents, as long as 
they are reasonable and customary; however, the Loan Note Guarantee 
will not cover either prepayment penalties or late payment fees.


Sec.  4279.232  Guaranteed loan funding.

    (a) 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 non-Federal sources to complete the Project. Eligible 
Project Costs are specified in Sec.  4279.210(d). If an eligible 
Borrower receives other direct Federal funding (i.e., direct loans or 
grants) for a Project, the maximum 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 $100,000,000 Project. If the Borrower receives no 
other direct Federal funding for this Project and

[[Page 36435]]

requests an $80,000,000 guaranteed loan, the Agency will consider a 
guarantee on the $80,000,000. However, if this Borrower receives 
$10,000,000 in other direct Federal funding for this Project, the 
Agency will only consider a guarantee on $70,000,000.
    (b) The maximum principal amount of a loan guaranteed under this 
subpart is $250 million to one Borrower; there is no minimum amount.
    (c) The maximum guarantee on the principal and Interest due on a 
loan guaranteed under this subpart will be determined as specified in 
paragraphs (c)(1) through (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 (c)(1)(i) through (iii) of this section are 
met, in which case 90 percent for the entire loan amount.
    (i) Total Federal participation, sum of the amount of the loan 
requested and other direct Federal funding, must not be greater than 60 
percent of total Eligible Project Costs;
    (ii) Feedstock and Off-Take Agreements of at least 1 year in 
duration; and
    (iii) Total of revenues from tax credits, carbon credits, or other 
Federal or State subsidies cannot be greater than 10 percent of the 
Project's total revenues on an annual basis, in the Borrower's base 
case of financial projections.
    (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.


Sec.  4279.233  Interest rates.

    The Interest rate for the guaranteed loan will be negotiated 
between the Lender and the Borrower and may be either fixed or 
variable, or a combination thereof, as long as it is a legal rate. 
Interest rates will not be more than those rates the Lender customarily 
charges Borrowers for non-guaranteed loans in similar circumstances in 
the ordinary course of business and are subject to Agency review and 
approval. Lenders are encouraged to utilize the secondary market and 
pass Interest-rate savings on to the Borrower.
    (a) A variable Interest rate must be a rate that is tied to a 
published base rate. The variable Interest rate must be specified in 
the Promissory Note and may be adjusted at specified intervals during 
the term of the loan, but the adjustments may not be more often than 
once each Calendar Quarter. The Lender must incorporate, within the 
variable rate Promissory Note at loan closing, the provision for 
adjustment of payment installments. The Lender must properly amortize 
the outstanding principal balance within the prescribed loan maturity 
in order to eliminate the possibility of a balloon payment at the end 
of the loan.
    (b) Any change in the base rate or fixed Interest rate between 
issuance of the Conditional Commitment and the issuance of the Loan 
Note Guarantee must be approved by the Agency. Approval of such a 
change must be shown as an amendment to the Conditional Commitment and 
must be reflected on the Guaranteed Loan Closing Report.
    (c) It is permissible to have different Interest rates on the 
guaranteed and unguaranteed portions of the loan.


Sec.  4279.234  Terms of loan.

    The loan terms, other than Interest, must be the same for both the 
guaranteed and unguaranteed portions of the loan.
    (a) The repayment term for a loan under this subpart will be no 
greater than the lesser of 20 years from the date of loan closing or 
the useful life of the Project, as determined by the Lender and 
confirmed by the Agency. Both the guaranteed and unguaranteed portions 
of the loan must be amortized over the same term.
    (b) 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.
    (c) The first installment of principal and Interest will, if 
possible, be scheduled for payment after the Project is operational and 
has begun to generate income. However, the first full installment must 
be due and payable within three years from the date of the Promissory 
Note and be paid at least annually thereafter. In cases where there is 
an Interest-only period, Interest will be paid at least annually from 
the date of the Promissory Note.
    (d) Only loans that require a periodic payment schedule that will 
retire the debt over the term of the loan without a balloon payment 
will be guaranteed except the final payment may be the funds held in 
the debt service reserve account.


Sec.  4279.235  Collateral.

    The Lender is responsible for obtaining and maintaining proper and 
adequate Collateral to protect the interest of the Lender, the Holder, 
and the Agency. Collateral must be of such a nature that repayment of 
the loan is reasonably ensured when considered with the integrity and 
ability of Project management, soundness of the Project, and the 
Borrower's prospective earnings. The Collateral may include, but is not 
limited to, the following: Revenue, land, easements, rights-of-way, 
buildings, machinery, equipment, inventory, accounts receivable, 
contracts, cash, or other accounts, licenses and assignments of leases 
or leasehold interest.
    (a) The entire loan, the guaranteed and unguaranteed portions, must 
be secured by a first lien on all assets of the Project including all 
assets in the Project budget. The Agency may consider a subordinate 
lien position on inventory and accounts receivable to Working Capital 
loans including revolving lines of credit provided the Agency 
determines the Working Capital is necessary for the operation and with 
the Subordination, the loan remains adequately secured.
    (b) The entire loan must be secured by the same security with equal 
lien priority for the guaranteed and unguaranteed portions of the loan. 
The unguaranteed portion of the loan will neither be paid first nor 
given any preference or priority over the guaranteed portion.


Sec. Sec.  4279.236-4279.242   [Reserved]


Sec.  4279.243  Insurance.

    The Lender is responsible for ensuring that required insurance is 
maintained by the Borrower. 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 the Project, including any feedstock or Off-Take 
Agreements, as may be applicable.
    (a) Hazard. Hazard insurance with a standard clause naming the 
Lender as mortgagee or loss payee, as applicable, is required for the 
life of the guaranteed loan. The amount must be at least equal to the 
replacement value of the Collateral or the outstanding balance of the 
loan, whichever is the greater amount.
    (b) Life. The Lender may require as Collateral an assignment of 
life insurance to insure against the risk of death of persons critical 
to the success of the business. When required, coverage must be in 
amounts necessary to provide for management succession or to protect 
the business. The Agency may require life insurance on key individuals 
for loans where the Lender has not otherwise proposed such coverage. 
The cost of insurance and its

[[Page 36436]]

effect on the applicant's Working Capital must be considered as well as 
the amount of existing insurance that could be assigned without 
requiring additional expense.
    (c) Worker compensation. Worker compensation insurance is required 
in accordance with State law.
    (d) Flood. National flood insurance is required in accordance with 
applicable law.
    (e) Other. The Lender must consider whether public liability, 
business interruption, malpractice, and other insurance is appropriate 
to the Borrower's particular business and must require the Borrower to 
obtain such insurance as is necessary to protect the interests of the 
Borrower, the Lender, or the Agency.


Sec.  4279.244  Appraisals.

    (a) Lenders must obtain appraisals for real estate when the value 
of the Collateral exceeds $250,000. Each appraisal must be reported in 
a manner that summarizes all of the information necessary for the 
intended users to understand the report and contain all information 
pertinent to the appraiser's opinions and conclusions.
    (1) Appraisals must not be more than one year old, and a more 
recent appraisal may be requested by the Agency in order to reflect 
more current market conditions. For loan servicing purposes, an 
appraisal may be updated in lieu of a complete new appraisal when the 
original appraisal is more than one year old, but less than two years 
old.
    (2) 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. 
The Agency will require documentation that the appraiser has the 
necessary experience and competency to appraise the property in 
question.
    (3) All real property appraisals associated with Agency guaranteed 
loan origination and servicing transactions must meet the requirements 
contained in the Financial Institutions Reform, Recovery and 
Enforcement Act (FIRREA) of 1989 and the appropriate guidelines 
contained in Standards 1 and 2 of the Uniform Standards of Professional 
Appraisal Practices (USPAP) and be performed by a State Certified 
General Appraiser. Notwithstanding any exemption that may exist for 
transactions guaranteed by a Federal Government agency, all appraisals 
obtained by the Lender for origination and servicing must conform to 
the Interagency Appraisal and Evaluations Guidelines established by the 
Lender's primary Federal or State regulator.
    (4) All appraisals must include consideration of the potential 
effects from a release of hazardous substances or petroleum products or 
other environmental hazards on the Market Value of the Collateral. The 
Lender must complete and submit its technical review of the appraisal. 
For construction Projects, the Lender must use the ``as-completed'' 
Market Value of the real estate to determine value of the real estate 
property. For all proposals, Lenders must obtain a Phase I 
Environmental Site Assessment in accordance with ASTM International 
Standards, which should be provided to the appraiser for completion of 
the appraisal. For additional guidance and information refer to ``Phase 
I Environmental Site Assessment,'' published by the American Society of 
Testing and Materials.
    (b) Chattels must be evaluated in accordance with normal banking 
practices and generally accepted methods of determining value. Chattel 
appraisals must reflect the age, condition, and remaining useful life 
of the equipment. If the appraisal is completed by a State licensed/
certified appraiser, the appraisal report must comply with USPAP 
Standards 7 and 8.


Sec.  4279.245  Personal and corporate guarantees.

    (a) Unconditional personal and corporate guarantees are required 
for the full term of the loan from Persons owning 20 percent or greater 
interest in the borrower.
    (b) When warranted by an Agency assessment and its credit 
evaluation, guarantees may also be required of parent, subsidiaries, 
affiliated companies, Persons owning less than a 20 percent interest in 
the borrower, or Persons whose ownership interest in the Borrower is 
held indirectly through intermediate entities.
    (c) The Agency may require the guarantees to be secured.
    (d) Partial guarantees and exemptions to the requirement for 
guarantees may be requested by the Lender and are subject to 
concurrence by the Agency approval official on a case-by-case basis 
when warranted by an Agency assessment and its credit evaluation in 
accordance with Sec.  4279.215(b). If partial guarantees are required, 
the partial guarantee will be at least equal to each owner's percentage 
of interest in the Borrower multiplied by the loan amount.
    (e) All personal and corporate guarantors must execute Form RD 
4279-14, ``Unconditional Guarantee,'' and any guarantee form required 
by the Lender. The Agency will retain the original, executed Form RD 
4279-14.
    (1) Any amounts paid by the Agency on behalf of an Agency Borrower 
will constitute a Federal Debt owed to the Agency by the Borrower.
    (2) Any amounts paid by the Agency pursuant to a claim by a Lender 
will constitute a Federal Debt owed to the Agency by a guarantor of the 
loan, to the extent of the amount of the guarantor's guarantee.
    (3) In all instances under paragraphs (c)(1) and (2) of this 
section, Interest charges will be assessed at the Promissory Note 
Interest rate on the date a loss claim is paid.


Sec. Sec.  4279.246-4279.255  [Reserved]


Sec.  4279.256  Construction planning and performing development.

    The Lender and Borrower must comply with paragraphs (a) through (i) 
of this section. The Lender may contract for services and may rely on 
certain written materials and other reports to be provided by an 
independent engineer and other qualified third parties.
    (a) Design policy. The Lender must monitor and require the Borrower 
ensure that all facilities constructed with Program funds are designed, 
and costs estimated, by an independent professional utilizing accepted 
architectural, engineering, and design practices and conform to 
applicable Federal, State, and local codes and requirements.
    (b) Project control. (1) The Lender must monitor the progress of 
construction and confirm the reviews and inspections necessary to 
ensure that construction conforms to applicable Federal, State, and 
local code requirements have been performed; proceeds are used in 
accordance with the approved plans, specifications, and contract 
documents; and that loan funds are used for Eligible Project Costs in 
accordance with the purposes approved by the Agency in its Conditional 
Commitment. The Lender must expeditiously report any problems in 
Project development to the Agency.
    (2) The Lender must ensure an onsite Project inspector or 
independent engineer monitors the Project.
    (3) The Lender must monitor the Project to confirm that the Project 
will be completed with available funds and, once completed, will be 
used for its intended purpose and produce products in the quality and 
quantity proposed in the completed application approved by the Agency. 
Once construction is completed, the Lender must provide the

[[Page 36437]]

Agency with a copy of the notice of completion.
    (4) Prior to the disbursement of construction funds, the Lender 
shall:
    (i) Have on file the major drawings issued for construction and 
major equipment specifications issued for procurement;
    (ii) Have a detailed timetable for the Project with a corresponding 
budget of costs, setting forth the parties responsible for payment;
    (iii) Ensure that the independent engineer confirms that the budget 
is adequate for the Project;
    (iv) Require the Borrower to have a firm fixed-price engineering, 
procurement and construction (EPC) contract in place which includes 
performance guarantees customary and reasonable for a project of this 
nature or engineering, construction, and procurement contracts in place 
with vendors and construction contractors for the construction of the 
Project, each on customary terms and conditions;
    (v) Require provisions for change order approvals, a retainage 
percentage, and a disbursement schedule;
    (vi) Require the Borrower to have contingencies in place to handle 
unforeseeable cost overruns without seeking additional Agency 
assistance. These contingencies must be agreed to by the Agency.
    (c) Changes and cost overruns. The Borrower is 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 (c) 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 that all debts have been paid and all mechanics' 
liens have been waived; and
    (3) Certification that the Borrower is complying with the Davis-
Bacon Act (see paragraph (h) of this section).
    (e) Surety. Surety, as the term is commonly used in the industry, 
will be required. The Borrower must have either 100 percent 
performance/payment bonds on the contractors or a guarantee from a 
creditworthy parent entity or an alternative acceptable to the Lender 
and the Agency and must be secured. The bonding agent must be listed on 
Treasury Circular 570.
    (f) Equal opportunity. For all construction contracts in excess of 
$10,000, the contractor must comply with Executive Order 11246, 
entitled ``Equal Employment Opportunity,'' as amended by Executive 
Order 11375, and as supplemented by applicable Department of Labor 
regulations (41 CFR part 60). The Borrower and Lender are responsible 
for ensuring that the contractor complies with these requirements.
    (g) Americans with Disabilities Act (ADA). Construction of or 
addition to facilities that accommodate the public or commercial 
facilities, as defined by the ADA, must comply with the ADA.
    (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 29 CFR part 5.
    (i) Reporting during construction. Lenders must submit monthly 
construction and quarterly progress reports to the Agency, as specified 
in paragraphs (i)(1) and (2), respectively, of this section and the 
Borrower information specified in paragraph (i)(3) of this section.
    (1) Monthly construction reports documenting the use of the Project 
funding until construction is completed. The reports must include the 
following:
    (i) Certifications for each draw request:
    (A) Certification by the independent engineer to the Lender that 
the work referred to in the draw has been successfully completed;
    (B) Certification from the Borrower and independent engineer or 
that the proceeds of the prior draw have been applied to Eligible 
Project Costs in accordance with the draw request and that the 
contractors have delivered mechanics' lien waivers in connection with 
such draw; and
    (C) Certification from the Borrower as to its compliance with the 
Davis-Bacon Act confirmed by the independent engineer;
    (ii) List of invoices;
    (iii) Detail of equity and Guaranteed Loan funds paid to date;
    (iv) Status of construction and inspection reports; and
    (v) Concerns, potential problems, cost overruns, etc.
    (2) Quarterly progress reports by the end of each Calendar Quarter, 
unless more frequent ones are needed as determined by the Agency, 
through the time when the facility is producing at its designed 
capacity at a steady state. These reports must contain, at a minimum, 
planned and completed construction milestones, loan advances, and 
personnel hiring, training, and retention and commissioning and ramp-up 
milestones and performance reports. 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 and Biobased Products 
including Renewable Chemicals. The Lender must expeditiously report any 
problems in Project development to the Agency.
    (3) Once construction is completed, the Lender must provide the 
Agency with:
    (i) A copy of all required material building permits, with sign-
offs;
    (ii) Notice of Completion or an Agency approved equivalent; and
    (iii) Final accounting of sources and uses of all Project funds.


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,

[[Page 36438]]

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, for 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's 
Project. 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.

Applications


Sec.  4279.260  Guarantee applications--general.

    (a) Application submittal. (1) For each guarantee request, the 
Lender or the Borrower must submit to the Agency a non-binding letter 
of intent to apply for loan guarantee not less than 30 calendar days 
prior to the application deadline as provided in paragraph (b) of this 
section. The letter must identify the Borrower, the Lender and Project 
sponsors; describe the Project and Project location; describe the 
proposed feedstock, primary technologies of the facility and primary 
products produced; estimate the Total Project Cost and amount of loan 
requested; and any additional information specified in the annual 
Federal Register notice, if any. Applications that do not submit a 
letter of intent may be accepted by the Agency at the Agency's 
discretion.
    (2) 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, application deadlines 
are October 1 and April 1 of each year. Complete applications must be 
received by the Agency on or before April 1 of each year to be 
considered for funding for that fiscal year. If the application 
deadline falls on a weekend or an observed holiday, the deadline will 
be the next Federal business day. The deadlines in this paragraph (b) 
relate to Phase 1 applications in accordance with Sec.  4279.261.
    (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 closing, 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 Agency will rescind the selection or 
withdraw the application.
    (e) Application revisions and updates. During the period between 
the submission of an application and closing, the Lender must notify 
the Agency, in writing, of revisions to the Project including but not 
limited to revisions to technology utilized in the Project, feedstock, 
Off-Take Agreements, ownership structure, and Project financing. The 
Agency may require submittal of updated application and supporting 
materials. The Agency will complete the application priority scoring in 
accordance with Sec.  4279.266 based on the application materials 
received by the Agency prior to the application deadline. Subsequent 
changes to an application that result in a lower priority score could 
result in the Agency discontinuing processing of the application.


Sec.  4279.261  Application for loan guarantee content.

    Lenders must submit a complete application for each loan guarantee 
sought under this subpart. Components of an application are submitted 
in two phases. Phase I applications, which are the initial application 
submissions, must contain the information specified in paragraphs (a) 
through (j) of this section, organized pursuant to a table of contents 
in a chapter format. Phase 2 application components may be submitted 
after the Agency invites the Lender and Borrower to make the phase 2 
submittal and must contain the information specified in paragraph (k) 
of this section.
    (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.  4279.209.
    (3) Project eligibility. Describe how the Project meets the 
eligibility criteria identified in Sec.  4279.210. Clearly state 
whether the application is for the construction and development of a 
Biorefinery or for the Retrofitting of an existing facility. Additional 
Project description information will be needed later in the application 
process.
    (4) Project funds. Submit a Spreadsheet identifying sources, 
amounts, and availability of funds. The Spreadsheet must also include a 
directory of funds source contact information. Attach any applications, 
correspondence, or other written communication between Borrower and 
fund source.
    (5) Project timeline. A projected timeline detailing the timeline 
commencing with the loan application phase 1, including the loan 
application phase 2, final Project planning and engineering, obtaining 
required permits, loan closing, plant construction, commissioning and 
ramp up through stabilized state of operation.
    (b) Application form. Form RD 4279-1 or other Agency-approved 
application form if specified in a Federal Register notice.
    (c) Financial statements. (1) The most recent audited financial 
statements of the Borrower, unless alternative financial statements are 
authorized by the Agency; and
    (2) A current (not more than 90 days old) balance sheet and a pro 
forma balance sheet at startup.
    (d) Financial model. Submit a financial model for the Project in 
the form of a financial modeling software program in an active 
electronic format which includes, but is not limited to, a projected 
Project budget and projected balance sheets, income and expense 
statements, cash flow statements, and Working Capital and capital 
expense projections for not less than the term of the loan. The 
projections must be displayed in a monthly format for a period of three 
years after stabilized operation and annually thereafter. Projections 
should be supported by a list of assumptions showing the basis for the 
projections. Depending on the complexity of the Project and the 
financial condition of the Borrower, the Agency may require additional 
financial statements and additional related information.
    (e) Feasibility Study. The Feasibility Study should be prepared by 
a qualified, independent third party using information gathered from 
other qualified parties and documents such

[[Page 36439]]

as: independent engineer reports, marketing studies, feedstock studies, 
business plans and financial statements prepared by a certified public 
accountant. Any information used to prepare the Feasibility Study 
should be submitted as attachments. Elements in an acceptable 
Feasibility Study include, but are not limited to, the elements 
outlined in Table 1 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
 
    Description of feedstock and confirmation that the feedstock is not
     used elsewhere in the production of Advanced Biofuels or Biobased
     Products including Renewable Chemicals.
    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 any other similar Biorefineries in the area in which the
     Borrower proposes to place the Project, defined as the area that
     will supply the feedstock to the proposed Project, if any.
    Impacts on existing manufacturing plants or other facilities that
     use similar feedstock if the Borrower's proposed production
     technology is adopted.
    Projected impact on resource conservation, public health, and the
     environment.
    Information regarding Project site.
    Availability of trained or trainable labor.
    Availability of infrastructure, including utilities, and rail, air
     and road service to the site.
    Overall economic impact of the Project, including direct jobs,
     indirect jobs, 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 and the estimated amount of annual feedstock 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 purchasers of off-take--principal products and
     secondary products, degree of commitment, duration or terms of Off-
     Take Agreements, and financial strength of counterparties.
    Risks related to the 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., pilot, demonstration, or Semi-Work Scale Facility).
     Provide results from pilot, demonstration, or Semi-Work Scale
     Facilities that prove that the technology proposed to be used is
     feasible and stands a good chance of being successful. The proposed
     technology must meet the definition of Eligible technology.
    The degree of integration of all processes should be detailed and a
     summary of any integrated demonstration unit test results should be
     submitted.
    Specific volume produced from the technology 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. 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.
    A projected timeline detailing Borrower plans from the time of loan
     application through plant construction, commissioning and ramp up
     should be included.
    Ability of the proposed system to be commercially replicated.
    Risks related to:
        Construction of the Biorefinery;
        Production of the Advanced Biofuel and Biobased Product
         including Renewable Chemical;
        Regulation and governmental action;
        Design-related factors that may affect Project success; and
        Technology scale up risk.
 
(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 Federal and non-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 and the degree financial feasibility is
     dependent on:

[[Page 36440]]

 
        Investment incentives;
        Productivity incentives;
        Loans and grants; and
        Other Project authorities RINs value, tax credits, other
         credits, 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:
        Production of Advanced Biofuel, and Biobased Product including
         Renewable Chemicals, as applicable;
        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 and
     contributors of the Feasibility Study, including prior experience,
     must be submitted.
------------------------------------------------------------------------

    (f) Business Plan. The Lender must submit the Borrower's business 
plan that includes the information specified in paragraphs (f)(1) 
through (10) of this section. Any or all of this information may be 
omitted if it is included in the Feasibility Study specified in 
paragraph (e) of this section.
    (1) Describe or provide an organizational chart of the Borrower's 
ownership structure and affiliation with other entities, if any. The 
names and a description of the relationship of the Borrower's parent, 
Affiliates, and subsidiaries. Identify local ownership.
    (2) The Borrower's succession planning, addressing both ownership 
and management.
    (3) The Borrower's experience and management experience.
    (4) The products and services to be provided and 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 three years of 
stabilized operation.
    (10) A description of the proposed use of funds.
    (g) Scoring information. The application must contain information 
in a format that is responsive to the scoring criteria specified in 
Sec.  4279.266.
    (h) Intergovernmental consultation. Intergovernmental consultation 
comments in accordance with 2 CFR part 415, subpart C or successor 
regulation.
    (i) 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.
    (j) Other information. Any other information determined by the 
Agency to be necessary to evaluate the application.
    (k) Phase 2 application contents. (1) Updates, as appropriate, to 
contents of application materials submitted in application phase 1.
    (2) An appraisal conducted as specified under Sec.  4279.244.
    (3) A proposed Loan Agreement or a sample Loan Agreement with an 
attached list of the proposed Loan Agreement provisions as specified in 
paragraphs (k)(3)(i) through (ix) of this section.
    (i) Prohibition against assuming liabilities or obligations of 
others.
    (ii) Restriction on dividend payments.
    (iii) Limitation on the purchase or sale of equipment and fixed 
assets.
    (iv) Limitation on compensation of officers and owners.
    (v) Minimum Working Capital or current ratio requirement.
    (vi) Maximum debt-to-net worth ratio.
    (vii) Restrictions concerning consolidations, mergers, or other 
circumstances.
    (viii) Limitations on selling the business without the concurrence 
of the Lender.
    (ix) Repayment and amortization of the loan.
    (4) Environmental Assessment must meet the policies and 
requirements of the National Environmental Policy Act and the Agency 
(as specified in Exhibit H of 7 CFR part 1940, subpart G.) Guidelines 
for preparing the Environmental Assessment are available from the 
Agency and published in the annual Federal Register notice.
    (5) Under the direction of the Agency, an evaluation and rating of 
the total Project's indebtedness, without consideration for a 
government guarantee, from a nationally-recognized statistical rating 
organization (NRSRO), as defined by the U.S. Security and Exchange 
Commission, for all Projects with total Eligible Project Costs of $25 
million or more unless as otherwise specified by the Agency in a notice 
published in the Federal Register. The evaluation and rating must be in 
the form of an indicative private rating,

[[Page 36441]]

private credit analysis, or comparable analysis report and include a 
rating in accordance with the NRSRO's credit rating scales and include 
a recovery analysis. An updated rating may be required at the Agency's 
discretion if changes are subsequently made to the Project including 
changes to any contracts and agreements or changes to loan terms and 
conditions.
    (6) Lender's analysis and credit evaluation that conforms to Sec.  
4279.215 and must include the information specified in paragraphs 
(k)(6)(i) and (ii) of this section.
    (i) The credit reports of the Borrower, its principals, and any 
parent, Affiliate, or subsidiary as follows:
    (A) Unless otherwise determined by the Agency, 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; and
    (B) Commercial credit reports on the Borrower and any parent, 
Affiliate, and subsidiary firms.
    (ii) Financial and sensitivity review using a financial modeling 
software program or a banking industry software analysis program with 
industry standards, when appropriate.
    (7) Whether the Loan Note Guarantee is requested prior to 
construction or after completion of construction of the Project.
    (8) The technical assessment must be completed by a qualified 
independent engineer and 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 (k)(8)(i) through (ix) 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 (k)(8)(i) through (ix) 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.
    (i) 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 and 
Biobased Product including Renewable Chemical, as applicable, 
technology development, engineering, installation, and maintenance. 
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. 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 and Biobased Products including Renewable 
Chemicals, if applicable, must be provided. In addition, authoritative 
evidence that vendors of proprietary components can provide necessary 
equipment and spare parts for the facility to operate over its useful 
life must be provided. The application must:
    (A) 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;
    (B) Discuss the manufacturers of major components of Advanced 
Biofuels and Biobased Product including Renewable Chemical 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;
    (C) Discuss the Project team members' qualifications for 
engineering, designing, and installing similar projects, 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
    (D) Describe the facility 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.
    (ii) 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 (k)(8)(ii)(A) through (F) 
of this section.
    (A) All facilities funded under this subpart 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.
    (B) Identify licenses where required and the schedule for obtaining 
those licenses.
    (C) Identify land use agreements required for the Project, the 
schedule for securing those agreements, and the term of those 
agreements.
    (D) Identify any permits or agreements required for solid, liquid, 
and gaseous emissions or effluents and the schedule for securing those 
permits and agreements.
    (E) Identify available component warranties for the specific 
Project location and size.
    (F) Identify all environmental issues, including environmental 
compliance issues, associated with the Project.
    (iii) Resource assessment. The application must provide adequate 
and appropriate evidence of the availability of the feedstocks required 
for the facility 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 including methods and systems to 
prevent the spread of invasive species. For proposed

[[Page 36442]]

Projects with an established resource, provide a summary of the 
resource.
    (iv) Design and engineering. The application must provide 
authoritative evidence that the facility 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 facility must be engineered as a complete, 
integrated facility. The engineering must be comprehensive, including 
site selection, systems and component selection, and systems monitoring 
equipment. All Projects funded under this subpart must be constructed 
by a qualified entity.
    (A) 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; facility 
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 and Biobased 
Product including Renewable Chemical produced by the facility. Discuss 
the impact of reduced or interrupted feedstock availability on the 
facility's operations.
    (B) The application must include:
    (1) A description of the Project site that addresses issues such as 
site access, foundations, and backup equipment when applicable;
    (2) A completed Form RD 1940-20 and an environmental assessment 
prepared in accordance with Exhibit H of 7 CFR part 1940, subpart G; 
and
    (3) Identification of any unique construction and installation 
issues.
    (C) Sites must be controlled by the eligible Borrower for at least 
the financing term of the Loan Note Guarantee.
    (v) 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.
    (vi) Equipment procurement. The application must demonstrate that 
equipment required by the facility is available and can be procured and 
delivered within the proposed Project development schedule. Projects 
funded under this subpart 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.
    (vii) 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 facility as a whole.
    (viii) Operations and maintenance. The application must provide the 
operations and maintenance requirements of the facility necessary for 
the facility to operate as designed over its useful life. The 
application must also include:
    (A) Information regarding available facility and component 
warranties and availability of spare parts;
    (B) A description of the routine operations and maintenance 
requirements of the proposed facility, including maintenance schedules 
for the mechanical, piping, and electrical systems and system 
monitoring and control requirements, as well as provision of 
information that supports expected useful life of the facility and 
timing of major component replacement or rebuilds;
    (C) A discussion of the costs and labor associated with operating 
and maintaining the facility 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
    (D) Provision and discussion of the risk management plan for 
handling large, unanticipated failures of major components.
    (ix) 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 
facility.


Sec. Sec.  4279.262-4279.264  [Reserved]


Sec.  4279.265  Guarantee application processing.

    (a) Eligibility determination. Upon receipt of a complete Phase 1 
application, the Agency will determine if the Borrower, Lender, and 
Project are eligible and if the Project is technically and economically 
feasible, as provided under paragraph (b) of this section.
    (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 Agency will inform the Lender in writing. Such notification will 
include the reasons for denial of the guarantee.
    (b) Technical and economic feasibility. (1) The Agency's 
determination of a Project's technical and economic feasibility will be 
based on:
    (i) The Agency's analysis of the technical report and Feasibility 
Study submitted in the application conducted by qualified independent 
third parties;
    (ii) The Lenders credit evaluation; and
    (iii) Other application materials.
    (2) The Agency's determination of a Project's technical feasibility 
will be based on the technical report. In addition, prior to loan 
closing of a Project utilizing technology that does not have a history 
of successful utilization in a Commercial-Scale operation of a 
Biorefinery that produces an Advanced Biofuel, evidence demonstrating 
120 days of continuous, steady state production from an integrated 
demonstration unit must be provided by the Borrower to the Lender and 
the Agency for review and determination of technical feasibility. 
Authoritative demonstration campaign results must be provided in 30-day 
intervals. The integrated demonstration unit must prove out the 
Project's ability to utilize Project-relevant biomass and produce 
Advanced Biofuel at a yield and quality consistent with the design 
basis of the Project. The Borrower must provide to the Agency, for 
review and approval, sufficient information on the integrated campaign 
design so as to ensure operation duration, quality, and quantity 
specifications are met and incorporated into the final design criteria 
for the commercial facility.
    (3) Projects determined by the Agency to be without technical or 
economic feasibility will not be selected for funding.


Sec.  4279.266  Guarantee application scoring.

    Using the evaluation criteria identified in this section, the 
Agency will score each eligible Biorefinery application that meets the 
minimum requirements for technical and economic feasibility. A maximum 
of 125 points is possible. The Agency will

[[Page 36443]]

award points based on its review and analysis of all application 
materials. Clarifications for the scoring on Biobased Product 
Manufacturing applications will be made available by a notice published 
in the Federal Register.
    (a) Whether the Borrower has established a market for the Advanced 
Biofuel and the Biobased Products including Renewable Chemicals, as 
applicable. A maximum of 20 points can be awarded. Points to be awarded 
will be determined as follows:
    (1) Degree of commitment of Off-Take Agreements. A maximum of 6 
points will be awarded.
    (i) If the Borrower has signed Off-Take Agreements for purchase for 
greater than 50 percent of the dollar value of off-take, 6 points will 
be awarded.
    (ii) If the Borrower has signed letters of intent to enter into 
Off-Take Agreements, or comparable documentation, for the purchase for 
greater than 50 percent of the dollar value of off-take, or combination 
of signed contracts or agreements and letters of intent or comparable 
documentation, 4 points will be awarded.
    (iii) If the Borrower has signed letters of interest to enter into 
Off-Take Agreements, or comparable documentation, for the purchase for 
greater than 50 percent of the dollar value of off-take, or combination 
of signed Off-Take Agreements, letters of intent, letters of intent or 
comparable documentation, 2 points will be awarded.
    (2) Duration of Off-Take Agreements. A maximum of 6 points will be 
awarded.
    (i) If the Borrower commits to enter into Off-Take Agreements prior 
to loan closing for purchase for greater than or equal to 50 percent of 
the dollar value of off-take for the period not less than the loan 
term, 6 points will be awarded.
    (ii) If the Borrower commits to enter into Off-Take Agreements 
prior to loan closing for purchase for greater than or equal to 50 
percent of the dollar value of off-take for the period not less than 
five years but less than the term of the loan, 4 points will be 
awarded.
    (iii) If the Borrower commits to enter into Off-Take Agreements 
prior to loan closing for purchase for greater than or equal to 50 
percent of the dollar value of off-take for the period not less than 
one year but less than five years, 2 points will be awarded.
    (3) Financial strength of the off-take counterparty. A maximum of 4 
points will be awarded.
    (i) If the Borrower commits to enter into Off-Take Agreements prior 
to loan closing for purchase for greater than or equal to 50 percent of 
the dollar value of off-take with an off-take counterparty with a 
corporate credit rating not less than AA, Aa2, or equivalent, 4 points 
will be awarded.
    (ii) If the Borrower commits to enter into Off-Take Agreements 
prior to loan closing for purchase for greater than or equal to 50 
percent of the dollar value of off-take with an off-take counterparty 
with a corporate credit rating less than AA, Aa2, or equivalent, but 
not less than A-, or A3, or equivalent, 2 points will be awarded.
    (iii) If the Borrower commits to enter into Off-Take Agreements 
prior to loan closing for purchase for greater than or equal to 50 
percent of the dollar value of off-take with an off-take counterparty 
with a corporate credit rating less than A-, or A3, or equivalent, but 
not less than BBB-, or Baa3, or equivalent, 1 point will be awarded.
    (4) Revenue dependency on tax credits, carbon credits, or other 
Federal or State subsidies. A maximum of 4 points will be awarded.
    (i) If total of revenues from tax credits, carbon credits, or other 
Federal or State subsidies is less than or equal to 10 percent of the 
Project's total revenues on an annual basis, in the Borrower's base 
case of financial projections, 4 points will be awarded.
    (ii) If total of revenues from tax credits, carbon credits, or 
other Federal or State subsidies is greater than 10 percent but less 
than or equal to 20 percent of the Project's total revenues on an 
annual basis, in the Borrower's base case of financial projections, 2 
points will be awarded.
    (iii) If total of revenues from tax credits, carbon credits, or 
other Federal or State subsidies is greater than 20 percent but less 
than or equal to 30 percent of the Project's total revenues on an 
annual basis, in the Borrower's base case of financial projections, 1 
point will be awarded.
    (b) Whether the area in which the Borrower proposes to place the 
Project, defined as the area that will supply the feedstock to the 
proposed Project, has any other similar facilities. A maximum of 5 
points can be awarded. Points to be awarded will be determined as 
follows:
    (1) If the area that will supply the feedstock to the proposed 
Project does not have any other similar facilities, 5 points will be 
awarded.
    (2) If there are other similar facilities located within the area 
that will supply the feedstock to the proposed Project, 0 points will 
be awarded.
    (c) Whether the Borrower is proposing to use a feedstock or 
biobased output of Biorefineries not previously used in the production 
of Advanced Biofuels or Biobased Products including Renewable 
Chemicals. A maximum of 10 points can be awarded. Points to be awarded 
will be determined as follows:
    (1) If the Borrower proposes to use a feedstock previously used in 
the production of Advanced Biofuels and Biobased Product including 
Renewable Chemicals in a commercial facility, 0 points will be awarded.
    (2) If the Borrower proposes to use a feedstock not previously used 
in production of Advanced Biofuels and Biobased Product including 
Renewable Chemicals in a commercial facility, 10 points will be 
awarded.
    (d) 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:
    (1) If at least 50 percent of the dollar value of feedstock to be 
used by the proposed Project will be supplied by producer associations 
and cooperatives, 5 points will be awarded.
    (2) If at least 30 percent of the dollar value of feedstock to be 
used by the proposed Project will be supplied by producer associations 
and cooperatives, 3 points will be awarded.
    (e) The level of financial participation by the Borrower, including 
support from non-Federal government sources and private sources. A 
maximum of 20 points can be awarded. Points to be awarded will be 
determined as follows:
    (1) If the sum of the loan amount requested and other direct 
Federal funding is less than or equal to 50 percent of total Eligible 
Project Cost, 20 points will be awarded.
    (2) If the sum of the loan amount requested and other direct 
Federal funding is greater than 50 percent but less than or equal to 55 
percent of total Eligible Project Cost, 16 points will be awarded.
    (3) If the sum of the loan amount requested and other direct 
Federal funding is greater than 55 percent but less than or equal to 60 
percent of total Eligible Project Cost, 12 points will be awarded.
    (4) If the sum of the loan amount and other direct Federal funding 
is greater than 60 percent but less than or equal to 65 percent of 
total Eligible Project Cost, 8 points will be awarded.
    (5) If the sum of the loan amount and other direct Federal funding 
is greater than 65 percent but less than or equal to 70 percent of 
total Eligible Project Cost, 4 points will be awarded.
    (f) Whether the Borrower has established that the adoption of the 
process proposed in the application will

[[Page 36444]]

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. Points to be awarded 
will be determined as follows:
    (1) 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.
    (2) If process adoption will have a positive impact on two of the 
three impact areas, 6 points will be awarded.
    (3) If process adoption will have a positive impact on all three 
impact areas, 10 points will be awarded.
    (4) If the Project proposes to use a feedstock that can be used for 
human or animal consumption, 5 points will be deducted from the score.
    (g) Whether the Borrower can establish that, if adopted, the 
technology proposed in the application will not have any economically 
significant negative impacts on existing manufacturing plants or other 
facilities that use similar feedstocks or biobased outputs of 
Biorefineries. A maximum of 5 points can be awarded. Points to be 
awarded will be determined as follows:
    (1) If the Borrower has failed to establish, through an independent 
third-party Feasibility Study, that the 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.
    (2) If the Borrower has established, through an independent third-
party Feasibility Study, that the production technology proposed in the 
application, if adopted, will not have any economically significant 
negative impacts on existing manufacturing plants or other facilities 
that use similar feedstocks, 5 points will be awarded.
    (3) If the feedstock is wood pellets, no points will be awarded 
under this criterion.
    (h) The potential for Rural economic development. A maximum of 20 
points will be awarded. Points to be awarded will be determined as 
follows:
    (1) If the Project is located in a Rural Area, 5 points will be 
awarded.
    (2) If the Project creates jobs through direct employment with an 
average wage that exceeds the County median household wages where the 
Project will be located, 5 points will be awarded.
    (3) If the majority of feedstock to be utilized by the Project, on 
an annual basis, is harvested from the land, 10 points will be awarded.
    (i) The level of local ownership of the facility proposed in the 
application. A maximum of 5 points can be awarded. Points to be awarded 
will be determined as follows:
    (1) If Local Owners have an ownership interest in the facility of 
more than 20 percent but less than or equal to 50 percent, 3 points 
will be awarded.
    (2) If Local Owners have an ownership interest in the facility of 
more than 50 percent, 5 points will be awarded.
    (j) Whether the Project can be replicated. A maximum of 10 points 
can be awarded. Points to be awarded will be determined as follows:
    (1) If the Project can be commercially replicated regionally (e.g., 
Northeast, Southwest, etc.), 5 points will be awarded.
    (2) If the Project can be commercially replicated nationally, 10 
points will be awarded.
    (k) If the Project uses a particular technology, system, or process 
that is not currently operating at Commercial Scale as of October 1 of 
the fiscal year for which the funding is available, 5 points will be 
awarded.
    (l) The Administrator can award up to a maximum of 10 bonus points:
    (1) To ensure, to the extent practical, there is diversity in the 
types of Projects approved for loan guarantees to ensure as wide a 
range as possible technologies, products, and approaches are assisted 
in the Program portfolio; and
    (2) To applications that promote partnerships and other activities 
that assist in the development of new and emerging technologies for the 
development of Advanced Biofuels and Biobased Products including 
Renewable Chemicals, so as to, as applicable, increase the energy 
independence of the United States or reduce our dependence on 
petroleum-based chemicals and products; 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.


Sec.  4279.267  Selecting guarantee applications.

    (a) Allocation of budget authority. 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, excluding 
funding for Biobased Product Manufacturing Projects, 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. Administrative procedures for the 
funding of Biobased Product Manufacturing Projects will be made 
available by a Notice published in the Federal Register.
    (b) Ranking of applications. The Agency will rank all complete 
eligible applications to create a priority list of scored Phase 1 
applications for the Program. Unless otherwise specified in a notice 
published in the Federal Register, the Agency will rank applications by 
approximately October 31 for complete and eligible applications 
received on or before October 1 and by approximately April 30 for 
complete and eligible applications received on or before April 1. All 
Phase 1 applications received on or before October 1 and April 1 will 
be ranked by the Agency and will be competed against the other 
applications received on or before such date.
    (c) Selection of applications for funding. The Agency will invite 
applicants to submit Phase 2 applications based on the criteria 
specified in paragraphs (c)(1) through (3) of this section. The Agency 
will notify, in writing, Lenders whose applications have been selected.
    (1) Ranking. The Agency will consider the score an application has 
received compared to the scores of other applications in the priority 
list created under paragraph (b) of this section, with highest scoring 
applications receiving first consideration for invitation to the phase 
2 submittal. 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

[[Page 36445]]

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.
    (d) Ranked applications not selected for phase 2. A ranked 
application that is not invited to submit phase 2 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.


Sec. Sec.  4279.268-4279.277  [Reserved]


Sec.  4279.278  Loan approval and obligating funds.

    (a) Applications for loan guarantees may be approved as their Phase 
2 applications are completed and approved. If an application has been 
selected for phase 2, but has not been approved because additional 
information is needed, the Agency will notify, in writing, 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 in writing.
    (b) Upon approval of a loan guarantee application, the Agency will 
issue a Conditional Commitment to the Lender containing conditions 
under which a Loan Note Guarantee will be issued. The Agency will not 
issue a Conditional Commitment until the Agency has satisfactorily 
completed a Civil Rights Impact Analysis. The Conditional Commitment 
becomes null and void unless the conditions are accepted by the Lender 
and Borrower within 60 days from the date of issuance by USDA. If the 
conditions are not met or the Loan Note Guarantee is not issued by the 
Conditional Commitment expiration date, the Agency may extend the 
Conditional Commitment expiration date when requested by the Lender and 
only if there has been no Material Adverse Change in the Borrower's or 
Borrowers' financial condition since issuance of the Conditional 
Commitment.
    (c) The Lender and Borrower may request changes to the Conditional 
Commitment. The Agency may negotiate with the Lender and the Borrower 
regarding any proposed changes to the Conditional Commitment. Any 
changes to the Conditional Commitment must be documented by written 
amendment to the Conditional Commitment. The changes must be for Good 
Cause and the Agency may deny, solely at is discretion, changes to the 
Conditional Commitment even if the change is otherwise in compliance 
with this subpart.
    (d) The Borrower must comply with all Federal requirements then in 
effect for receiving Federal assistance.


Sec.  4279.279  Transfer of Lenders.

    (a) The Agency may approve the substitution of a new eligible 
Lender in place of a former Lender who has been issued an outstanding 
Conditional Commitment when the Loan Note Guarantee has not yet been 
issued provided that there are no changes in the:
    (1) Borrower's ownership or control, loan purposes, or scope of 
Project;
    (2) Loan terms and conditions in the Conditional Commitment; and
    (3) Loan Agreement.
    (b) The Agency must determine that the new Lender is eligible in 
accordance with Sec.  4279.208 prior to approving the substitution. The 
original Lender must provide the Agency with a letter stating the 
reasons it no longer desires to be a Lender for the Project. The 
substituted Lender must execute a new part B of Form 4279-1 and 
Lender's Agreement (unless a valid Lender's Agreement with the Agency 
already exists), and must complete a new Lender's analysis in 
accordance with Sec.  4279.215. The new Lender may also be required to 
provide other updated application items outlined in Sec.  4279.261(k).


Sec.  4279.280  Changes in Borrowers.

    Any changes in Borrower ownership or organization prior to the 
issuance of the Loan Note Guarantee must meet the eligibility 
requirements of the Program and be approved by the Agency.


Sec.  4279.281  Conditions precedent to issuance of Loan Note 
Guarantee.

    The Lender must not close the loan until all conditions of the 
Conditional Commitment are met or can be met. When loan closing plans 
are established, the Lender must notify the Agency in writing.
    (a) Coincident with, or immediately after loan closing, the Lender 
must provide the following forms and documents to the Agency:
    (1) An executed Lender's Agreement;
    (2) Form RD 1980-19, ``Guaranteed Loan Closing Report,'' and 
appropriate guarantee fee;
    (3) Copy of the executed Promissory Note(s);
    (4) Copy of the executed Loan Agreement;
    (5) Copy of the executed settlement statement and updated source 
and use statement including all Project funding;
    (6) Original, executed Forms RD 4279-14, as appropriate;
    (7) Borrower's loan closing balance sheet; and
    (8) Any other documents required to comply with applicable law or 
required by the Conditional Commitment or the Agency.
    (b) The Lender must provide their certification to each condition 
specified in paragraphs (b)(1) through (16) of this section. The Lender 
may rely on certain written materials (including but not limited to 
certifications, evaluations, appraisals, financial statements and other 
reports) to be provided by the Borrower or other qualified third 
parties (including, among others, one or more independent engineers, 
appraisers, accountants, attorneys, consultants or other experts.) 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 paragraphs 
(b)(1) through (16) of this section.
    (1) If required, hazard, flood, liability, worker compensation, and 
life insurance are in effect.
    (2) All truth-in-lending and equal credit opportunity requirements 
have been met.
    (3) The loan has been properly closed, and the required security 
instruments

[[Page 36446]]

have been properly executed, or will be promptly obtained on any 
property that cannot be immediately secured under State law.
    (4) The Borrower has or will have marketable title to the 
Collateral, subject to the guaranteed loan and to any other exceptions 
approved in writing by the Agency.
    (5) The loan proceeds have been or will be disbursed for purposes 
and in amounts consistent with the Conditional Commitment and the 
application submitted to the Agency.
    (6) When required, personal or corporate guarantees have been 
obtained in accordance with Sec.  4279.245.
    (7) All requirements of the Conditional Commitment have been met.
    (8) Lien priorities are consistent with the requirements of the 
Conditional Commitment. No claims or liens of laborers, subcontractors, 
suppliers of machinery and equipment, materialmen, or other parties 
have been filed against the Collateral and no suits are pending or 
threatened that would adversely affect the Collateral when the security 
instruments are filed.
    (9) There has been neither any Material Adverse Change in the 
Borrower's financial condition nor any other Material Adverse Change in 
the Borrower, for any reason, during the period of time from the 
Agency's issuance of the Conditional Commitment to issuance of the Loan 
Note Guarantee regardless of the cause or causes of the change and 
whether or not the change or causes of the change were within the 
Lender's or Borrower's control. The Lender must address any assumptions 
or reservations in this certification and must address all Material 
Adverse Changes of the Borrower, any parent, Affiliate, or subsidiary 
of the Borrower, and guarantors.
    (10) Neither the Lender nor any of the Lender's officers has an 
ownership interest in the Borrower or is an officer or director of the 
Borrower, and neither the Borrower nor its officers, directors, 
stockholders, or other owners have more than a 5 percent ownership 
interest in the Lender.
    (11) The Loan Agreement includes all Borrower compliance measures 
identified in the Agency's environmental review process for avoiding or 
reducing adverse environmental impacts of the Project's construction or 
operation.
    (12) 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 must completely disclose 
such lobbying activities in accordance with 31 U.S.C. 1352.
    (13) Where applicable, the Lender must certify that the Borrower 
has obtained:
    (i) 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; 
and
    (ii) 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 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.
    (14) 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 40 U.S.C. 
3141 through 3144, 3146, and 3147. Awards under this subpart are 
further subject to the relevant regulations contained in Title 29 of 
the CFR.
    (15) The Lender certifies that it has reviewed all contract 
documents and verified compliance with 40 U.S.C. 3141 through 3144, 
3146, and 3147 and Title 29 of the CFR. The Lender will certify that 
the same process will be completed for all future contracts and any 
changes to existing contracts.
    (16) 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.
    (c) The Agency may, at its discretion, request copies of loan 
documents for its file.
    (d) When the Agency is satisfied that all conditions for the 
guarantee have been met, the Agency will issue the Loan Note 
Guarantee(s) and the documents identified in paragraphs (d)(1) and (2) 
of this section, as appropriate.
    (1) Assignment Guarantee Agreement. In the event the Lender uses 
the single Promissory Note option and assigns the guaranteed portion of 
the loan to a Holder, the Lender, Holder, and the Agency will execute 
the Assignment Guarantee Agreement.
    (2) Certificate of Incumbency. If requested by the Lender, the 
Agency will provide the Lender with a certification on Form 4279-7, 
``Certificate of Incumbency and Signature,'' of the signature and title 
of the Agency official who signs the Loan Note Guarantee, Lender's 
Agreement, and Assignment Guarantee Agreement.


Sec.  4279.282  [Reserved]


Sec.  4279.283  Refusal to execute Loan Note Guarantee.

    If the Agency determines that it cannot execute the Loan Note 
Guarantee, the Agency will inform the Lender, in writing, of the 
reasons and give the Lender a reasonable period within which to satisfy 
the objections. If the Lender satisfies the objections within the time 
allowed, the Agency will issue the Loan Note Guarantee. If the Lender 
requests additional time in writing and within the period allowed, the 
Agency may grant the request.


Sec. Sec.  4279.284-4279.289  [Reserved]


Sec.  4279.290  Requirements after Project construction.

    Once the Project has been constructed, the Lender must meet the 
requirements specified in paragraphs (a) and (b) of this section.
    (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 paragraphs (a)(1) through (8), 
as applicable, of this section.
    (1) The actual amount of Advanced Biofuels, Biobased Products 
including Renewable Chemicals, and Byproducts produced.

[[Page 36447]]

    (2) If applicable, documentation that identified health 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.
    (b) For the life of the guaranteed loan, conduct annual 
inspections.


Sec. Sec.  4279.291-4279.299  [Reserved]


Sec.  4279.300  OMB control number.

    In accordance with the Paperwork Reduction Act of 1995, the 
information collection requirements contained in the subsequent interim 
rule have been submitted to the Office of Management and Budget (OMB) 
under OMB control number 0570-0065 for approval. A person is not 
required to respond to a collection of information unless it displays a 
currently valid OMB control number.

PART 4287--SERVICING

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

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

0
4. Revise Subpart D to read as follows:
Subpart D--Servicing Biorefinery, Renewable Chemical, and Biobased 
Manufacturing Assistance Guaranteed Loans
Sec.
4287.301 Introduction.
4287.302 Definitions.
4287.303 Exception authority.
4287.304-4287.305 [Reserved]
4287.306 Appeals.
4287.307 Routine servicing.
4287.308-4287.311 [Reserved]
4287.312 Interest rate changes.
4287.313 Release of Collateral.
4287.314-4287.322 [Reserved]
4287.323 Subordination of lien position.
4287.324 Alterations of loan instruments.
4287.325-4287.333 [Reserved]
4287.334 Transfer and Assumption.
4287.335 Substitution of Lender.
4287.336 Lender failure.
4287.337-4287.344 [Reserved]
4287.345 Default by Borrower.
4287.346-4287.355 [Reserved]
4287.356 Protective Advances.
4287.357 Liquidation.
4287.358 Determination of loss and payment.
4287.359-4287.368 [Reserved]
4287.369 Future recovery.
4287.370 Bankruptcy.
4287.371-4287.379 [Reserved]
4287.380 Termination of guarantee.
4287.381-4287.399 [Reserved]
4287.400 OMB control number.

Subpart D--Servicing Biorefinery, Renewable Chemical, and Biobased 
Manufacturing Assistance Guaranteed Loans


Sec.  4287.301  Introduction.

    (a) This subpart supplements 7 CFR part 4279, subpart C by 
providing additional requirements and instructions for servicing and 
liquidating all loans guaranteed under 7 CFR part 4279, subpart C.
    (b) The Lender is 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 
must continue to 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) All loan servicing actions under this subpart, except for those 
identified in Sec.  4287.307(a) through (g), are subject to Agency 
concurrence. Whether specifically stated or not, whenever Agency 
approval is required, it must be in writing. Whenever Agency approval 
is required, such servicing action must be for Good Cause.
    (d) Copies of all forms, regulations, and Instructions referenced 
in this subpart may be obtained from any Agency office and from the 
USDA Rural Development Web site at http://www.rd.usda.gov/programs-services/biorefinery-assistance-program. Whenever a form is designated 
in this subpart, that designation includes predecessor and successor 
forms, if applicable, as specified by the Agency.


Sec.  4287.302  Definitions.

    The definitions and abbreviations contained in Sec.  4279.202 of 
this chapter apply to this subpart.


Sec.  4287.303  Exception authority.

    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.

    Borrowers, Lenders, and Holders have appeal or review rights for 
Agency decisions made under this subpart. Programmatic decisions based 
on clear and objective statutory or regulatory requirements are not 
appealable; however, such decisions are reviewable for appealability by 
the National Appeals Division (NAD). The Borrower, Lender, and Holder 
can appeal any Agency decision that directly and adversely impacts 
them. For an adverse decision that impacts the Borrower, the Lender and 
Borrower must jointly execute a written request for appeal for an 
alleged adverse decision made by the Agency. An adverse decision that 
only impacts the Lender may be appealed by the Lender only. An adverse 
decision that only impacts the Holder may be appealed by the Holder 
only. A decision by a Lender adverse to the interest of the Borrower is 
not a decision by the Agency, whether or not concurred in by the 
Agency. Appeals will be conducted by NAD and will be handled in 
accordance with 7 CFR part 11.


Sec.  4287.307  Routine servicing.

    The Lender is responsible for servicing the entire loan and for 
taking all servicing actions that a reasonable Lender would perform in 
servicing its own portfolio of loans that are not guaranteed. The 
guarantee is unenforceable by the Lender to the extent any loss is 
occasioned by violation of usury laws, use of loan funds for 
unauthorized purposes, Negligent Loan Servicing or Grossly Negligent 
Loan Servicing as established in the Loan Note Guarantee, or failure to 
maintain the required security interest regardless of the time at which 
the Agency acquires knowledge of the foregoing. The Lender may contract 
for services and may rely on certain written materials (including but 
not limited to certifications, evaluations, appraisals, financial 
statements and other reports) to be provided by the Borrower or other 
qualified third parties (including, among others, one or more 
independent engineers, appraisers, accountants, consultants or other 
experts) but is ultimately responsible for underwriting, loan 
origination, loan servicing, and compliance with all Agency 
regulations. The Lender's Agreement is the contractual agreement 
between the Lender and the Agency that sets forth

[[Page 36448]]

some of the Lender's loan servicing responsibilities. This 
responsibility includes but is not limited to periodic Borrower visits, 
the collection of payments, obtaining compliance with the covenants and 
provisions in the Loan Agreement, obtaining and analyzing financial 
statements, ensuring payment of taxes and insurance premiums, and 
maintaining liens on Collateral, and keeping an inventory accounting of 
all Collateral items and reconciling the inventory of all Collateral 
sold during loan servicing, including liquidation.
    (a) Periodic reports. Each Lender must submit reports by the end of 
each Calendar Quarter, 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. The Lender must report the outstanding 
principal and Interest balance and the current Loan Classification on 
each guaranteed loan using either the USDA Lender Interactive Network 
Connection (LINC) system or Form RD 1980-41, ``Guaranteed Loan Status 
Report.''
    (b) Default reports. Lenders must submit monthly Default reports, 
including Borrower payment history, for each loan in monetary Default 
using a form approved by the Agency.
    (c) Annual Renewal Fee. The Lender must transmit the Annual Renewal 
Fee to the Agency in accordance with Sec.  4279.231(b) of this chapter 
calculated based on the December 31 loan status report.
    (d) Agency and Lender conference. At the Agency's request, the 
Lender must consult with the Agency to ascertain how the guaranteed 
loan is being serviced and that the conditions and covenants of the 
Loan Agreement are being enforced.
    (e) Borrower Financial reports. The Lender must obtain, analyze, 
and forward to the Agency the Borrower's and any guarantor's financial 
statements required by the Loan Agreement within 45 days of the end of 
each Calendar Quarter and audited financial statements within 180 days 
of the end of the Borrower's fiscal year. The Lender must analyze these 
financial statements and provide the Agency with a written summary of 
the Lender's analysis, ratio analysis, and conclusions, which, at a 
minimum, must include trends, strengths, weaknesses, extraordinary 
transactions, violations of loan covenants and covenant waivers 
proposed by the Lender, any routine servicing actions performed, and 
other indications of the financial condition of the Borrower. 
Spreadsheets of the financial statements must also be included. 
Following the Agency's review of the Lender's financial analysis, the 
Agency will provide a written report of any concerns to the Lender. Any 
concerns based upon the Agency's review must be addressed by the 
Lender. If the Lender makes a reasonable attempt to obtain financial 
statements, but is unable to obtain the Borrower's cooperation, the 
failure to obtain financial statements will not impair the validity of 
the Loan Note Guarantee.
    (f) Audits. Any Public Body, nonprofit corporation or Indian Tribe 
that receives a guaranteed loan that meets the thresholds established 
by 2 CFR part 200, subpart F, must provide an audit for the fiscal year 
(of the borrower) in which the Loan Note Guarantee is issued. If the 
loan is for development or purchases made in a previous fiscal year 
through interim financing, an audit will also be provided for the 
fiscal year in which the development or purchases occurred. Any audit 
provided by a Public Body, nonprofit corporation, or Indian Tribe in 
accordance with this paragraph (f) will be considered adequate to meet 
the audit requirements of the Program for that year.
    (g) Protection of Agency interests. 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 to rectify the situation. In determining any loss, the Agency 
will assess against the Lender any cost to the Agency associated with 
such action.
    (h) Additional loans. The Lender must notify the Agency in writing 
when the Lender makes any additional expenditures or new loans to the 
Borrower. 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. Any additional 
expenditure or loan made by the Lender must be junior in priority to 
the BAP 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.  4279.235(a) of this chapter and in Sec.  4287.323.


Sec. Sec.  4287.308-4287.311  [Reserved]


Sec.  4287.312  Interest rate changes.

    (a) Reductions. The Borrower, Lender, and Holder (if any) may 
collectively initiate a permanent or temporary reduction in the 
Interest rate of the guaranteed loan at any time during the life of the 
loan upon written agreement among these parties. The Lender must obtain 
prior Agency concurrence and must provide a copy of the modification 
agreement to the Agency. If any of the guaranteed portion has been 
purchased by the Agency, the Agency (as a Holder) will affirm or reject 
Interest rate change proposals in writing.
    (1) Fixed rates can be changed to variable rates to reduce the 
Borrower's Interest rate only when the variable rate has a ceiling 
which is less than or equal to the original fixed rate.
    (2) The Interest rates, after adjustments, must comply with the 
requirements for Interest rates on new loans as established by Sec.  
4279.233 of this chapter.
    (3) The Lender is responsible for the legal documentation of 
Interest rate changes by an endorsement or any other legally effective 
amendment to the Promissory Note; however, no new Promissory Notes may 
be issued. The Lender must provide copies of all legal documents to the 
Agency.
    (b) Increases. Increases in fixed Interest rates and increases in 
variable rate basis are not permitted (except the normal fluctuations 
in approved variable Interest rates), unless a temporary Interest rate 
reduction occurred. Any increase in rates must be for Good Cause.


Sec.  4287.313  Release of Collateral.

    The Lender must inspect the Collateral as often as necessary to 
properly service the loan. The Agency must give prior written approval 
for the release of Collateral, except as specified in paragraph (a) of 
this section or where the release of Collateral is made of Collateral 
under the abundance of caution provision of the applicable security 
agreement, subject to the provisions of paragraph (c) 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 of 
this chapter. The sale or release of Collateral must be based on an 
Arm's Length Transaction, unless otherwise approved by the Agency in 
writing.

[[Page 36449]]

    (a) Within the parameters of paragraph (c) of this section, Lenders 
may, over the life of the guaranteed loan, release Collateral (other 
than personal and corporate guarantees) with a cumulative value of up 
to 20 percent of the original loan amount without Agency concurrence if 
the proceeds generated are used to reduce the guaranteed loan or to buy 
replacement Collateral. Working assets, such as accounts receivable, 
inventory, and work-in-progress that are routinely depleted or sold and 
the proceeds used for the normal course of business operations, may be 
used in and released for routine business purposes without prior 
concurrence of the Agency as long as the loan has not been accelerated.
    (b) If a release of Collateral does not meet the requirements of 
paragraph (a) of this section, the Lender must complete a written 
evaluation to justify the release and must obtain written Agency 
concurrence in advance of the release.
    (c) The Lender must support all releases of Collateral with a value 
exceeding $250,000 with a current appraisal on the Collateral being 
released. The appraisal must meet the requirements of Sec.  4279.244 of 
this chapter. The cost of this appraisal will not be paid for by the 
Agency. The Agency may, at its discretion, require an appraisal of the 
remaining Collateral in cases where it has been determined that the 
Agency may be adversely affected by the release of Collateral. The sale 
or release of the Collateral must be at Fair Market Value based on an 
Arm's Length Transaction, and there must be adequate consideration for 
the release of Collateral. Such consideration may include, but is not 
limited to:
    (1) Application of the net proceeds from the sale of Collateral to 
the Borrower's debts in order of their lien priority in the sold 
Collateral;
    (2) Use of the net proceeds from the sale of Collateral to purchase 
other Collateral of equal or greater value which the Lender will obtain 
as security for the benefit of the guaranteed loan with a lien position 
equal or superior to the position previously held;
    (3) Application of the net proceeds from the sale of Collateral to 
the Borrower's business operation in such a manner that a significant 
improvement to the Borrower's debt service ability is clearly 
demonstrated. The Lender's written request must detail how the 
Borrower's debt service ability will be improved; and
    (4) Assurance that the release of Collateral is essential for the 
success of the business, thereby furthering the goals of the Program. 
Such assurance must be supported by written documentation from the 
Lender acceptable to the Agency.
    (d) Any release of Collateral must not adversely affect the 
Project's operation or financial condition.


Sec. Sec.  4287.314-4287.322   [Reserved]


Sec.  4287.323  Subordination of lien position.

    A Subordination of the Lender's lien position must be requested in 
writing by the Lender and concurred with in writing by the Agency in 
advance of the Subordination. The Lender's Subordination proposal must 
include a financial analysis of the servicing action and be fully 
supported by current financial statements of the Borrower and 
guarantors that are less than 90 days old.
    (a) The Subordination of the Lender's lien position must enhance 
the Borrower's business and be in the best financial interest of the 
Agency.
    (b) The lien to which the guaranteed loan is subordinated is for a 
fixed dollar limit and for a fixed term after which the guaranteed loan 
lien priority will be restored. Notwithstanding, a Subordination of 
lien position on inventory and accounts receivable may be made to a 
line of credit.
    (c) Collateral must remain sufficient to provide for adequate 
Collateral coverage. The Agency may require a current independent 
appraisal in accordance with Sec.  4279.244 of this chapter.
    (d) Lien priorities must remain for the portion of the loan 
Collateral that was not subordinated.
    (e) Subordination of the Lender's lien position must be for Good 
Cause.


Sec.  4287.324  Alterations of loan instruments.

    The Lender must neither alter nor approve any alterations or 
modifications of any loan instrument without the prior written approval 
of the Agency.


Sec. Sec.  4287.325-4287.333  [Reserved]


Sec.  4287.334  Transfer and Assumption.

    The Lender may request a Transfer and Assumption of a guaranteed 
loan when the total indebtedness, or less than the total indebtedness, 
is assumed by another Borrower. If the assumption is for less than the 
total indebtedness of the guaranteed loan, the Transfer and Assumption 
must be an Arm's Length Transaction and the transfer must be of all 
loan Collateral. In the event of Default of the guaranteed loan, a 
Transfer and Assumption of the Borrower's operation and guaranteed loan 
can be accomplished before or after the loan goes into liquidation. 
However, if the Collateral has been purchased through foreclosure or 
the Borrower has conveyed title to the Lender, no Transfer and 
Assumption is permitted.
    (a) Documentation of request. All Transfers and Assumptions cannot 
be conducted unless the Agency gives prior written approval. An 
individual credit report must be provided for transferee and its 
partners, officers, directors, and stockholders with 20 percent or more 
interest in the business, along with such other documentation as the 
Agency may request to determine eligibility and credit worthiness. The 
new Borrower must sign Form RD 4279-1.
    (b) Terms. Loan terms may be changed for Transfer and Assumptions 
to eligible Borrowers continuing the Project for eligible purposes with 
the concurrence of the Agency, all Holders, and the transferor 
(including guarantors). If the transferor has been or will be released 
from liability, the transferor's concurrence is not required. Any new 
loan terms must be within the terms authorized by Sec.  4279.234 of 
this chapter and must be for Good Cause.
    (c) Release of liability. The transferor, including any guarantor, 
may be released from liability only with prior Agency written 
concurrence when the Transfer and Assumption is an Arm's Length 
Transaction and:
    (1) The assumption is for the full amount of the loan and all of 
the loan Collateral is transferred to the transferee; or
    (2) The assumption is for less than the full amount of the loan, 
all of the loan Collateral is transferred to the transferee, and the 
Lender demonstrates to the Agency that the transferor and guarantors 
have no reasonable debt-paying ability considering their assets and 
income in the foreseeable future.
    (d) Proceeds. The Lender must credit any proceeds received from the 
sale of Collateral before a Transfer and Assumption to the transferor's 
guaranteed loan debt in order of lien priority before the Transfer and 
Assumption are closed.
    (e) Additional loans. Guaranteed loans to provide additional funds 
in connection with a Transfer and Assumption must be considered a new 
loan application, which requires submission of a complete Agency 
application in accordance with Sec. Sec.  4279.260 and 4279.261 of this 
chapter.
    (f) Credit quality. The Lender must make a complete credit analysis 
in accordance with Sec.  4279.215 of this chapter.
    (g) Appraisals. If the proposed Transfer and Assumption is for the 
full amount of the Agency guaranteed loan and all loan Collateral, the 
Agency will

[[Page 36450]]

not require an appraisal. If the proposed Transfer and Assumption is 
for less than the full amount of the Agency guaranteed loan, the Agency 
will require an appraisal on all of the Collateral being transferred, 
and the amount of the assumption must not be less than this appraised 
value. The Lender is responsible for obtaining this appraisal, which 
must conform to the requirements of Sec.  4279.244 of this chapter. The 
Agency will not pay the appraisal fee or any other costs associated 
with this transfer.
    (h) Documents. Prior to Agency approval, the Lender must provide 
the Agency a written legal opinion that the transaction can be properly 
and legally transferred and assurance that the conveyance instruments 
will be appropriately filed, registered, and recorded.
    (1) The Lender must not issue any new Promissory Notes. The 
assumption must be completed in accordance with applicable law and must 
contain the Agency case number of the transferor and transferee. The 
Lender will provide the Agency with a copy of the Transfer and 
Assumption agreement. The Lender must ensure that all Transfers and 
Assumptions are noted on all original Loan Note Guarantees.
    (2) A new Loan Agreement, consistent in principle with the original 
Loan Agreement, must be executed to establish the terms and conditions 
of the loan being assumed. An assumption agreement can be used to 
establish the loan covenants.
    (3) Upon execution of the Transfer and Assumption, the Lender must 
provide the Agency with a written legal opinion that the Transfer and 
Assumption is completed, valid, enforceable, and certification that the 
Transfer and Assumption is consistent with the conditions outlined in 
the Agency's conditions of approval for the transfer and complies with 
all Agency regulations.
    (i) Loss resulting from transfer. (1) Any resulting loss must be 
processed in accordance with Sec.  4287.358.
    (2) If a Holder owns any of the guaranteed portion, such portion 
must be repurchased by the Lender or the Agency in accordance with 
Sec.  4279.225 of this chapter.
    (j) Related party. If the transferor and transferee are Affiliates 
or related parties, any Transfer and Assumption must be to an eligible 
Borrower to continue the Project for eligible purposes, must transfer 
all of the loan Collateral, and must be for the full amount of the 
guaranteed loan indebtedness.
    (k) Cash down payment. The Lender may allow the transferee to make 
cash down payments directly to the transferor provided:
    (1) The Transfer and Assumption is made for the total indebtedness 
to an eligible Borrower to continue the Project for eligible purposes;
    (2) The Lender recommends that the cash be released, and the Agency 
concurs prior to the transaction being completed. The Lender may 
require that an amount be retained for a defined period of time as a 
reserve against future Defaults. Interest on such account may be paid 
periodically to the transferor or transferee as agreed;
    (3) The Lender determines that the transferee has the repayment 
ability to meet the obligations of the assumed guaranteed loan as well 
as any other indebtedness; and
    (4) Any payments by the transferee to the transferor will not 
suspend the transferee's obligations to continue to meet the guaranteed 
loan payments as they come due under the terms of the assumption.
    (l) Transfer/Annual Renewal Fees. (1) The Agency will charge a 
nonrefundable transfer fee at the time of transfer, which may be passed 
on to the Borrower by the Lender. The transfer fee rate will be equal 
to the rate of the guarantee fee authorized in Sec.  4279.231(a) of 
this chapter for the fiscal year in which the transfer occurs. The 
amount of the transfer fee is determined by multiplying the principal 
balance at the time of the transfer by the transfer fee rate by the 
percentage of guarantee on the original loan.
    (2) The Lender must pay any Annual Renewal Fee in accordance with 
Sec.  4279.231(b) of this chapter.
    (m) Change in control of Borrower. Transfer and Assumption shall be 
deemed to occur in the event of a change in the control of the 
Borrower.
    (n) Personal and corporate guarantees. Guarantees from owners are 
required in accordance with Sec.  4279.245 of this chapter.


Sec.  4287.335  Substitution of Lender.

    The Lender is prohibited from selling or transferring the entire 
loan without the prior written approval of the Agency. Because the Loan 
Note Guarantee is associated with a specific Promissory Note and cannot 
be transferred to a new Promissory Note, the Lender must transfer the 
original Promissory Note and loan security documents to the new Lender, 
who must agree to its current loan terms, including the Interest rate, 
secondary market Holder (if any), Collateral, Loan Agreement terms, and 
guarantors. The new Lender must also obtain the original Loan Note 
Guarantee, original personal and corporate guarantee(s), and the loan 
payment history from the transferor Lender. If the new Lender wishes to 
modify the loan terms after acquisition, the new Lender must submit a 
request to the Agency.
    (a) The Agency may approve the substitution of a new Lender if:
    (1) The proposed substitute Lender:
    (i) Is an eligible Lender in accordance with Sec.  4279.208 of this 
chapter;
    (ii) Is able to service the loan in accordance with the original 
loan documents; and
    (iii) Agrees to acquire title to the unguaranteed portion of the 
loan held by the original Lender and assumes all original loan 
requirements, including liabilities and servicing responsibilities; and
    (2) The substitution of the Lender is requested in writing by the 
Borrower, the proposed substitute Lender, and the original Lender if 
still in existence.
    (b) The Agency will not pay any loss or share in any costs (e.g., 
appraisal fees and environmental assessments) with a new Lender unless 
a relationship is established through a substitution of Lender in 
accordance with paragraph (a) of this section. This includes situations 
where a Lender is acquired by another Lender and situations where the 
Lender has failed and been taken over by a regulatory agency such as 
the Federal Deposit Insurance Corporation (FDIC) and the loan is 
subsequently sold to another Lender.
    (c) In cases when there is a substitution of Lender or when a 
Lender has been merged with or acquired by another Lender, the Agency 
and the new Lender must execute a new Lender's Agreement, unless a 
valid Lender's Agreement already exists with the new Lender.


Sec.  4287.336  Lender failure.

    (a) The acquiring Lender must comply with 7 CFR parts 4279, subpart 
C and 4287, subpart D and must take such action that a reasonable 
Lender would take if it did not have a Loan Note Guarantee to protect 
the Lender and Agency's mutual interest. The Lender cannot arbitrarily 
change the Lender's Agreement and related documents on the guaranteed 
loan, and the Agency will make the successor to the failed institution 
aware of the statutory and regulatory requirements.
    (b) In the event of a Default and the guaranteed loan is liquidated 
by the FDIC rather than being sold to another Lender, the Agency will 
pay losses and share in costs as if the FDIC were an approved new 
Lender.

[[Page 36451]]

Sec. Sec.  4287.337-4287.344   [Reserved]


Sec.  4287.345  Default by Borrower.

    The Lender's primary responsibilities in Default are to act 
reasonably and expeditiously, to work with the Borrower to bring the 
account current or cure the Default through restructuring if a 
realistic plan can be developed, or to accelerate the account and 
conduct a liquidation in a manner that will minimize any potential 
loss. The Lender may initiate liquidation in accordance with Sec.  
4287.357.
    (a) The Lender must notify the Agency in writing when a Borrower is 
more than 30 days past due on a payment and the Delinquency cannot be 
cured within 30 days or when a Borrower is otherwise in Default of 
covenants in the Loan Agreement by submitting Form RD 1980-44, 
``Guaranteed Loan Borrower Default Status,'' or processing the Default 
Status report in LINC. The Lender must provide this notification 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. The 
Lender must update the loan's status each month using either Form RD 
1980-44 or the LINC Default Status report until such time as the loan 
is no longer in Default. If a monetary Default exceeds 60 days, the 
Lender must meet with the Agency and, if practical, the Borrower to 
discuss the situation.
    (b) In considering options, the prospects for providing a permanent 
cure without adversely affecting the risk to the Agency and the Lender 
are the paramount objective.
    (1) Curative actions (subject to the rights of any Holder) include, 
but are not limited to:
    (i) Deferment of principal or Interest payments;
    (ii) An additional unguaranteed temporary loan by the Lender to 
bring the account current;
    (iii) Reamortization of or rescheduling the payments on the loan 
(subject to the rights of any Holder) excluding capitalization of 
accrued Interest;
    (iv) Transfer and Assumption of the loan in accordance with Sec.  
4287.334;
    (v) Reorganization;
    (vi) Liquidation; and
    (vii) Changes in Interest rates with the Agency's, the Lender's, 
and Holder's approval. Any Interest rate changes must be adjusted 
proportionately between the guaranteed and unguaranteed portion of the 
loan.
    (2) The term of any deferment, rescheduling, reamortization, or 
moratorium will be limited to the lesser of the remaining life of the 
Collateral or remaining limits as set forth in Sec.  4279.234 of this 
chapter (excluding paragraph (d)). Balloon payments are permitted as a 
loan servicing option as long as there is a reasonable prospect for 
success and the remaining life of the Collateral supports the action.
    (3) In the event of a loss or a repurchase, the Lender cannot claim 
Default or penalty Interest, late payment fees, or Interest on 
Interest.
    (c) Debt write-downs by the lender are prohibited when the Lender 
will continue with the Project loan, except as directed or ordered by a 
final court order.
    (d) In the event of a loss, the guarantee will not cover Interest 
to the Lender accruing after the Interest Termination Date.
    (e) For repurchases of guaranteed loans, refer to Sec.  4279.225 of 
this chapter.


Sec. Sec.  4287.346-4287.355  [Reserved]


Sec.  4287.356  Protective Advances.

    Protective Advances are advances made by the Lender for the purpose 
of preserving and protecting the Collateral where the Borrower has 
failed to, will not, or cannot meet its obligations. Lenders must 
exercise sound judgment in determining that the Protective Advance 
preserves Collateral and recovery is actually enhanced by making the 
advance. Lenders cannot make Protective Advances in lieu of additional 
loans. A Protective Advance claim will be paid only at the time of the 
final payment as indicated in the Guaranteed Loan Report of Loss.
    (a) The maximum loss to be paid by the Agency will never exceed the 
original loan amount plus accrued Interest times the percentage of 
guarantee regardless of any Protective Advances made.
    (b) In the event of a final loss, Protective Advances will accrue 
Interest at the Promissory Note rate and will be guaranteed at the same 
percentage of loss as provided in the Loan Note Guarantee. The 
guarantee will not cover Interest on the Protective Advance accruing 
after the Interest Termination Date.
    (c) Protective Advances must constitute an indebtedness of the 
Borrower to the Lender and be secured by the security instruments. 
Agency written authorization is required when the cumulative total of 
Protective Advances exceeds $200,000 or 10 percent of the outstanding 
balance of principal, whichever is less.


Sec.  4287.357  Liquidation.

    In the event of one or more incidents of Default or third party 
actions that the Borrower cannot or will not cure or eliminate within a 
reasonable period of time, the Lender, with Agency consent, must 
provide for liquidation.
    (a) Decision to liquidate. A decision to liquidate or proceed 
otherwise must be made when the Lender determines that the Default 
cannot be cured through actions such as those contained in Sec.  
4287.345, or it has been determined that it is in the best interest of 
the Agency and the Lender to liquidate. The decision to liquidate or 
proceed otherwise with the Borrower must be made as soon as possible 
when one or more of the following exist:
    (1) A loan is 90 days behind on any scheduled payment and the 
Lender and the Borrower have not been able to cure the Delinquency 
through actions such as those contained in Sec.  4287.345.
    (2) It is determined that delaying liquidation will jeopardize full 
recovery on the loan.
    (3) The Borrower or Lender is uncooperative in resolving the 
problem or the Agency or Lender has reason to believe the Borrower is 
not acting in good faith, and immediate liquidation would minimize loss 
to the Agency.
    (b) Repurchase of loan. When the decision to liquidate is made, if 
any portion of the loan has been sold or assigned under Sec.  4279.223 
of this chapter and not already repurchased, provisions will be made 
for repurchase in accordance with Sec.  4279.225 of this chapter.
    (c) Lender's liquidation plan. The Lender is responsible for 
initiating actions immediately and as necessary to ensure a prompt, 
orderly liquidation that will provide maximum recovery. Within 30 days 
after a decision to liquidate, the Lender must submit a written, 
proposed plan of liquidation to the Agency for approval. The 
liquidation plan must be detailed and include at least the following:
    (1) Such proof as the Agency requires to establish the Lender's 
ownership of the guaranteed loan Promissory Note and related security 
instruments and a copy of the payment ledger, if available, that 
reflects the current loan balance, accrued Interest to date, and the 
method of computing the Interest;
    (2) A full and complete list of all Collateral, including any 
personal and corporate guarantees;
    (3) The recommended liquidation methods for making the maximum 
collection possible on the indebtedness and the justification for such 
methods, including recommended action for acquiring and disposing of 
all Collateral and collecting from guarantors;
    (4) Necessary steps for preservation of the Collateral;

[[Page 36452]]

    (5) Copies of the Borrower's most recently available financial 
statements;
    (6) Copies of each guarantor's most recently available financial 
statements;
    (7) An itemized list of estimated Liquidation Expenses expected to 
be incurred along with justification for each expense;
    (8) A schedule to periodically report to the Agency on the progress 
of liquidation;
    (9) Estimated Protective Advance amounts with justification;
    (10) Proposed protective bid amounts on Collateral to be sold at 
auction and a breakdown to show how the amounts were determined. A 
protective bid may be made by the Lender, with prior Agency written 
approval, at a foreclosure sale to protect the Lender's and the 
Agency's interest. The protective bid will be based on the liquidation 
value and estimated net recovery considering prior liens and 
outstanding taxes, expenses of foreclosure, and estimated expenses for 
holding and reselling the property. These expenses include, but are not 
limited to, expenses for resale, Interest accrual, length of time 
necessary for resale, maintenance, guard service, weatherization, and 
prior liens;
    (11) If a voluntary conveyance is considered, the proposed amount 
to be credited to the guaranteed debt;
    (12) Legal opinions, if needed by the Lender's legal counsel; and
    (13) An estimate of Fair Market Value and potential liquidation 
value of the Collateral. If the value of the Collateral is $250,000 or 
more, the Lender must obtain an independent appraisal report meeting 
the requirements of Sec.  4279.244 of this chapter on the Collateral 
securing the loan, which reflects the Fair Market Value and potential 
liquidation value. The liquidation appraisal must evaluate the impact 
on Market Value of any release of hazardous substances, petroleum 
products, or other environmental hazards. The independent appraiser's 
fee, including the cost of the environmental site assessment, will be 
shared equally by the Agency and the Lender. In order to ensure prompt 
action, the liquidation plan can be submitted with an estimate of 
Collateral value, and the liquidation plan may be approved by the 
Agency subject to the results of the final liquidation appraisal.
    (d) Approval of liquidation plan. The Lender cannot implement its 
liquidation plan before obtaining written approval from the Agency. The 
Lender and Agency must attempt to resolve any Agency concerns.
    (1) If the liquidation plan is approved by the Agency, the Lender 
must proceed expeditiously with liquidation and must take all legal 
action necessary to liquidate the loan in accordance with the approved 
liquidation plan. The Lender must update or modify the liquidation plan 
when conditions warrant, including a change in value based on a 
liquidation appraisal.
    (2) Should the Agency and the Lender not agree on the liquidation 
plan, negotiations will take place between the Agency and the Lender to 
resolve the disagreement. The Lender must take such actions that a 
reasonable Lender would take without a guarantee and keep the Agency 
informed in writing. When the liquidation plan is approved by the 
Agency, the Lender will proceed expeditiously with liquidation.
    (e) Acceleration. The Lender will proceed to accelerate the 
indebtedness as expeditiously as possible when acceleration is 
necessary, including giving any notices and taking any other legal 
actions required. The guaranteed loan will be considered in liquidation 
once the loan has been accelerated and a demand for payment has been 
made upon the Borrower. The Lender must obtain from the Agency 
concurrence prior to the acceleration of the loan if the sole basis for 
acceleration is a nonmonetary Default. In the case of monetary Default, 
prior approval by the Agency of the Lender's acceleration is not 
required, although Agency concurrence must still be given not later 
than at the time the liquidation plan is approved. The Lender will 
provide a copy of the acceleration notice or other acceleration 
document to the Agency.
    (f) Filing an estimated loss claim. When the Lender owns any of the 
guaranteed portion of the loan, the Lender must file an estimated loss 
claim once a decision has been made to liquidate if the liquidation is 
expected to exceed 90 days. When calculating the estimated loss 
payment, the value of the Collateral must be based on its estimated net 
liquidation value. For the purpose of reporting and loss claim 
computation, the guarantee will not cover Interest to the Lender 
accruing after the Interest Termination Date. The Agency will promptly 
process the loss claim in accordance with applicable Agency regulations 
as set forth in Sec.  4287.358.
    (g) Accounting and reports. The Lender must account for funds 
during the period of liquidation and must, in accordance with the 
Agency-approved liquidation plan, provide the Agency with reports on 
the progress of liquidation including disposition of Collateral, 
resulting costs, and additional procedures necessary for successful 
completion of the liquidation.
    (h) Transmitting payments and proceeds to the Agency. When the 
Agency is the Holder of a portion of the guaranteed loan, the Lender 
must transmit to the Agency within 14 calendar days its Pro Rata share 
of any payments received from the Borrower, liquidation, or other 
proceeds using Form RD 1980-43, ``Lender's Guaranteed Loan Payment to 
Rural Development.''
    (i) Abandonment of Collateral. When the Lender adequately documents 
that the cost of liquidation would exceed the potential recovery value 
of certain Collateral and receives Agency concurrence, the Lender may 
abandon that Collateral. When the Lender makes a recommendation for 
abandonment of Collateral, it must comply with 7 CFR part 1940, subpart 
G.
    (j) Disposition of personal or corporate guarantees. The Lender 
must take action to maximize recovery from all personal and corporate 
guarantees, including seeking Deficiency Judgments when there is a 
reasonable chance of future collection.
    (k) Compromise settlement. Compromise settlements must be approved 
by the Lender and the Agency. Complete current financial information on 
all parties obligated for the loan must be provided. At a minimum, the 
compromise settlement must be equivalent to the value and timeliness of 
that which would be received from attempting to collect on the 
guarantee. The guarantor cannot be released from liability until the 
full amount of the compromise settlement has been received. In weighing 
whether the compromise settlement should be accepted, among other 
things, the Agency will weigh whether the compromise is more 
financially advantageous than collecting on the guarantee.
    (l) Litigation. In all litigation proceedings involving the 
Borrower, the Lender is responsible for protecting the rights of the 
Lender with respect to the loan and keeping the Agency adequately and 
regularly informed, in writing, of all aspects of the proceedings. If 
the Agency determines that the Lender is not adequately protecting the 
rights of the Lender or the Agency with respect to the loan, the Agency 
reserves the right to take any legal action the Agency determines 
necessary to protect the rights of the Lender, on behalf of the Lender, 
or the Agency with respect to the loan. If the Agency exercises this 
right, the Lender must cooperate with the Agency. Any cost to the 
Agency

[[Page 36453]]

associated with such action will be assessed against the Lender.


Sec.  4287.358  Determination of loss and payment.

    Unless the Agency anticipates a Future Recovery, the Agency will 
make a final settlement with the Lender after the Collateral is 
liquidated and settlement and compromise of all parties has been 
completed. The Agency has the right to recover losses paid under the 
guarantee from any party that may be liable.
    (a) Report of loss form. Form RD 449-30, ``Guaranteed Loan Report 
of Loss,'' will be used for reporting and calculating all estimated and 
final loss determinations.
    (b) Estimated loss. In accordance with the requirements of Sec.  
4287.357(f), the Lender must prepare an estimated loss claim and submit 
it to the Agency.
    (1) Interest accrual eligible for payment under the guarantee on 
the Defaulted loan will be discontinued when the estimated loss is 
paid.
    (2) A Protective Advance claim will be paid only at the time of the 
final payment as indicated in the Guaranteed Loan Report of Loss.
    (3) The estimated loss payment is a payment to the Lender and is 
not to be applied as a payment on the loan for purposes of reducing the 
unpaid balance owed by the Borrower or for status reporting (semi-
annual status/Default status reports).
    (c) Final loss. Except for certain unsecured personal or corporate 
guarantees as provided for in this section, the Lender must prepare a 
final Guaranteed Loan Report of Loss and submit it to the Agency within 
30 days after liquidation of all Collateral is completed. Interest will 
not be paid beyond the Interest Termination Date. Before approval by 
the Agency of any final loss report, the Lender must account for all 
funds during the period of liquidation, disposition of the Collateral, 
all costs incurred, and any other information necessary for the 
successful completion of liquidation. Upon receipt of the final 
accounting and Guaranteed Loan Report of Loss, the Agency may audit all 
applicable documentation to determine the final loss. The Lender must 
make its records available and otherwise assist the Agency in making 
any investigation. The documentation accompanying the Guaranteed Loan 
Report of Loss must support the amounts reported as losses on the 
Guaranteed Loan Report of Loss.
    (1) The Lender must make a determination regarding the 
collectability of unsecured personal and corporate guarantees. If 
reasonably possible, the Lender must promptly collect or otherwise 
dispose of such guarantees in accordance with Sec.  4287.357(j) prior 
to completion of the final loss report. However, in the event that 
collection from the guarantors appears unlikely or will require a 
prolonged period of time, the Lender must file the Guaranteed Loan 
Report of Loss when all other Collateral has been liquidated. Unsecured 
personal or corporate guarantees outstanding at the time of the 
submission of the final loss claim will be treated as a Future Recovery 
with the net proceeds to be shared on a Pro Rata basis by the Lender 
and the Agency. The Agency may consider a compromise settlement of 
Federal Debt after it has processed a final Guaranteed Loan Report of 
Loss and issued a 60 day due process letter. Any funds collected on 
Federal Debt will not be shared with the Lender.
    (2) The Lender must document that all of the Collateral has been 
accounted for and properly liquidated and liquidation proceeds have 
been accounted for and applied correctly to the loan.
    (3) The Lender must provide receipts and a breakdown of any 
Protective Advance amount as to the payee, purpose of the expenditure, 
date paid, and evidence that the amount expended was proper.
    (4) The Lender must provide receipts and a breakdown of Liquidation 
Expenses as to the payee, purpose of the expenditure, date paid, and 
evidence that the amount expended was proper. Liquidation Expenses are 
recoverable only from liquidation proceeds. The Agency may approve 
attorney/legal fees as Liquidation Expenses provided that the fees are 
reasonable, require the assistance of attorneys, and cover legal issues 
pertaining to the liquidation that could not be properly handled by the 
Lender and its employees.
    (5) The Lender must support accrued Interest by documenting how the 
amount was accrued. If the Interest rate was a variable rate, the 
Lender must include documentation of changes in both the selected base 
rate and the loan rate.
    (6) The Agency will pay loss payments within 60 days after it has 
reviewed the complete final loss report and accounting of the 
Collateral.
    (7) If a Lender receives a final loss payment and the Agency 
determines there is Future Recovery, 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.
    (d) Loss limit. The amount payable by the Agency to the Lender 
cannot exceed the limits set forth in the Loan Note Guarantee.
    (e) Liquidation Expenses. The Agency will deduct Liquidation 
Expenses from the liquidation proceeds of the Collateral. The Lender 
cannot claim any Liquidation Expenses in excess of liquidation 
proceeds. Any changes to the Liquidation Expenses that exceed 10 
percent of the amount proposed in the liquidation plan must be approved 
by the Agency. Reasonable attorney/legal expenses will be shared by the 
Lender and Agency equally, including those instances where the Lender 
has incurred such expenses from a trustee conducting the liquidation of 
assets. The Lender cannot claim the guarantee fee or the Annual Renewal 
Fee as authorized Liquidation Expenses, and no In-House Expenses of the 
Lender will be allowed. In-House Expenses include, but are not limited 
to, employee's salaries, staff lawyers, travel, and overhead.
    (f) Rent. The Lender must apply any net rental or other income that 
it receives from the Collateral to the guaranteed loan debt.
    (g) Payment. Once the Agency approves the Guaranteed Loan Report of 
Loss and supporting documents submitted by the Lender:
    (1) If the loss is greater than any estimated loss payment, the 
Agency will pay the additional amount owed by the Agency to the Lender.
    (2) If the loss is less than the estimated loss payment, the Lender 
must reimburse the Agency for the overpayment plus Interest at the 
Promissory Note rate from the date of payment.


Sec. Sec.  4287.359-4287.368   [Reserved]


Sec.  4287.369  Future recovery.

    Unless notified otherwise by the Agency, after the final loss claim 
has been paid, the Lender must use reasonable efforts to attempt 
collection from any party still liable for Future Recovery. Any net 
proceeds from Future Recovery must be split Pro Rata between the Lender 
and the Agency based on the original amount of the loan guarantee. Any 
collection of Federal Debt made by the Federal Government from any 
liable party to the guaranteed loan will not be split with the Lender.


Sec.  4287.370  Bankruptcy.

    (a) Lender's responsibilities. It is the Lender's responsibility to 
protect the guaranteed loan and all of the Collateral securing it in 
bankruptcy and any related appellate proceedings. These 
responsibilities include, but are not limited to the following:

[[Page 36454]]

    (1) Monitoring confirmed bankruptcy plans to determine Borrower 
compliance, and, if the Borrower fails to comply, pursue appropriate 
relief;
    (2) Filing all the necessary papers and pleadings concerning the 
case, including where appropriate a proof of claim;
    (3) Attending and, where necessary, participating in meetings of 
the creditors and all court proceedings;
    (4) Requesting modifications of any proposed bankruptcy plan 
whenever it appears that the Lender could obtain additional recoveries 
via plan modification;
    (5) Keeping the Agency adequately and regularly informed in writing 
of all aspects of the proceedings;
    (6) Submitting a Default status report within 15 days after the 
date when the Borrower Defaults and every 30 days thereafter until the 
Default is resolved or a final loss claim is paid by the Agency. The 
Default status report will be used to inform the Agency of the 
bankruptcy filing, the plan confirmation date, when the plan is 
complete, and when the Borrower is not in compliance with the plan; and
    (7) With written Agency consent, the Lender and Agency will equally 
share the cost of any independent appraisal fee to protect the 
guaranteed loan in any bankruptcy proceedings.
    (b) Reports of loss during bankruptcy. In bankruptcy proceedings, 
payment of loss claims will be made as provided in this section.
    (1) Estimated loss payments. (i) If a Borrower has filed for 
bankruptcy and all or a portion of the debt has been discharged, the 
Lender must request an estimated loss payment of the guaranteed portion 
of the accrued Interest and principal discharged by the court. Only one 
estimated loss payment is allowed during the bankruptcy and any related 
appellate proceedings. All subsequent claims of the Lender during 
bankruptcy and any related appellate proceedings will be considered 
revisions to the initial estimated loss. A revised estimated loss 
payment may be processed by the Agency, at its option, in accordance 
with any court-approved changes in the bankruptcy plan. Once the 
bankruptcy plan has been completed, the Lender is responsible for 
submitting the documentation necessary for the Agency to review and 
adjust the estimated loss claim to reflect any actual discharge of 
principal and Interest and to reimburse the Lender for any court-
ordered Interest rate reduction under the terms of the bankruptcy plan.
    (ii) The Lender must use the Guaranteed Loan Report of Loss to 
request an estimated loss payment and to revise any estimated loss 
payments during the course of the bankruptcy plan. The estimated loss 
claim, as well as any revisions to this claim, must be accompanied by 
documentation to support the claim.
    (iii) Upon completion of a bankruptcy plan, the Lender must:
    (A) Complete a Form RD 1980-44 and forward this form to the Agency; 
and
    (B) Provide the Agency with the documentation necessary to 
determine whether the estimated loss paid equals the actual loss 
sustained.
    (1) If the actual loss sustained as a result of the bankruptcy is 
less than the estimated loss, the Lender must reimburse the Agency for 
the overpayment plus Interest at the Promissory Note rate from the date 
of payment of the estimated loss.
    (2) If the actual loss is greater than the estimated loss payment, 
the Lender must submit a revised estimated loss claim in order to 
obtain payment of the additional amount owed by the Agency to the 
Lender.
    (2) Bankruptcy loss payments. (i) The Lender must request a 
bankruptcy loss payment of the guaranteed portion of the accrued 
Interest and principal discharged by the court for all bankruptcies 
when all or a portion of the debt has been discharged. Unless a final 
court decree approves a subsequent change to the bankruptcy plan that 
is adverse to the Lender, only one bankruptcy loss payment is allowed 
during the bankruptcy. Once a final court decree has discharged all or 
part of the guaranteed loan and any appeal period has run, the Lender 
must submit the documentation necessary for the Agency to review and 
adjust the bankruptcy loss claim to reflect any actual discharge of 
principal and Interest.
    (ii) The Lender must use the Guaranteed Loan Report of Loss to 
request a bankruptcy loss payment and to revise any bankruptcy loss 
payments during the course of the bankruptcy. The Lender must include 
with the bankruptcy loss claim documentation to support the claim, as 
well as any revisions to this claim.
    (iii) Upon completion of a bankruptcy plan, restructuring, or 
liquidation, the Lender must either complete a Form RD 1980-44 and 
forward this form to the Agency or enter the data directly into LINC.
    (iv) If an estimated loss claim is paid during a bankruptcy and the 
Borrower repays in full the remaining balance without an additional 
loss sustained by the Lender, a final Guaranteed Loan Report of Loss is 
not necessary.
    (3) Interest rate losses as a result of bankruptcy reorganization. 
Interest rate losses as a result of bankruptcy reorganization will be 
paid as follows:
    (i) Interest losses sustained during the period of the bankruptcy 
plan will be processed in accordance with paragraph (b)(1) of this 
section;
    (ii) Interest losses sustained after the bankruptcy plan is 
confirmed will be processed annually when the Lender sustains a loss as 
a result of a permanent Interest rate reduction that extends beyond the 
period of the bankruptcy plan; and
    (iii) If a bankruptcy loss claim is paid during the operation of 
the bankruptcy plan and the Borrower repays in full the remaining 
balance without an additional loss sustained by the Lender, a final 
Guaranteed Loan Report of Loss is not necessary.
    (4) Final bankruptcy loss payments. The Agency will process final 
bankruptcy loss payments when the loan is fully liquidated.
    (5) Application of loss claim payments. The Lender must apply 
estimated loss payments first to the unsecured principal of the 
guaranteed portion of the debt and then to the unsecured interest of 
the guaranteed portion of the debt. In the event a court attempts to 
direct the payments to be applied in a different manner, the Lender 
must immediately notify the Agency in writing.
    (6) Protective Advances. If approved Protective Advances, as 
authorized by Sec.  4287.356, were incurred in connection with the 
initiation of liquidation action and were required to provide repairs, 
insurance, etc., to protect the Collateral as result of delays in the 
case of failure of the Borrower to maintain the security prior to the 
Borrower having filed bankruptcy, the Protective Advances together with 
accrued Interest are payable under the guarantee in the final loss 
claim.
    (c) Expenses during bankruptcy proceedings. (1) Under no 
circumstances will the guarantee cover Liquidation Expenses in excess 
of liquidation proceeds.
    (2) Expenses, such as reasonable attorney/legal fees and the cost 
of appraisals incurred by the Lender as a direct result of the 
Borrower's bankruptcy filing, will be shared equally by the Lender and 
the Agency.
    (3) Reasonable and customary Liquidation Expenses must be deducted 
from Collateral sale proceeds. Liquidation Expenses are covered under 
the guarantee, provided they are reasonable, customary, and provide a 
demonstrated economic benefit to the Lender and the Agency. Lender's 
In-

[[Page 36455]]

House Expenses, which are those expenses that would normally be 
incurred for administration of the loan, including in-house lawyers, 
are not covered by the guarantee.
    (4) When a bankruptcy proceeding results in a liquidation of the 
Borrower by a bankruptcy trustee appointed under 11 U.S.C. 701, 702, 
703 or 1104, expenses will be handled as directed by the court, and the 
Lender cannot claim Liquidation Expenses for the sale of the assets.
    (5) If the property is abandoned by the bankruptcy trustee, the 
Lender will conduct the liquidation in accordance with Sec.  4287.357.
    (6) Proceeds received from partial sale of Collateral during 
bankruptcy may be used by the Lender to pay reasonable costs, such as 
freight, labor and sales commissions, associated with the partial sale. 
Reasonable use of proceeds for this purpose must be documented with the 
final loss claim.


Sec. Sec.  4287.371-4287.379   [Reserved]


Sec.  4287.380  Termination of guarantee.

    The Loan Note Guarantee will terminate under any of the following 
conditions:
    (a) Upon full payment of the guaranteed loan;
    (b) Upon full payment of any loss obligation; or
    (c) Upon written notice from the Lender to the Agency that the 
guarantee will terminate 30 days after the date of notice, provided 
that the Lender owns the entire guaranteed interest in the loan and the 
Loan Note Guarantee is returned to the Agency to be canceled.


Sec. Sec.  4287.381-4287.399   [Reserved]


Sec.  4287.400  OMB control number.

    In accordance with the Paperwork Reduction Act of 1995, the 
information collection requirements contained in the subsequent interim 
rule have been submitted to the Office of Management and Budget (OMB) 
under OMB Control Number 0570-0065 for approval. A person is not 
required to respond to a collection of information unless it displays a 
currently valid OMB control number.

    Dated: June 12, 2015.
Lisa Mensah,
Under Secretary, Rural Development.
[FR Doc. 2015-14989 Filed 6-23-15; 8:45 am]
 BILLING CODE 3410-XY-P