[Federal Register Volume 80, Number 146 (Thursday, July 30, 2015)]
[Rules and Regulations]
[Pages 45397-45413]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-18624]



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DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1738

RIN 0572-AC34


Rural Broadband Access Loans and Loan Guarantees

AGENCY: Rural Utilities Service, USDA.

ACTION: Interim rule.

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SUMMARY: The Rural Utilities Service, an agency of the United States 
Department of Agriculture, hereinafter referred to as the Agency, is 
amending its regulation for the Rural Broadband Access Loan and Loan 
Guarantee Program (Broadband Loan Program) to implement the 
Agricultural Act of 2014 (the 2014 Farm Bill). The enactment of the 
2014 Farm Bill made changes the Agency must adopt prior to accepting 
applications for future loans. The Agency is publishing this regulation 
as an interim rule, which will take effect upon publication in the 
Federal Register, and will allow the Agency to begin accepting 
applications once again. In addition, the Agency is seeking comments 
regarding this interim rule to guide its efforts in drafting the final 
rule for the Broadband Loan Program.

DATES: Effective Date: July 30, 2015.
    Comment Date: September 28, 2015.

ADDRESSES: Submit comments, identified by docket number RUS-15-Telecom-
0001 and RIN number 0572-AC34, by any of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    Postal Mail/Commercial Delivery/Hand Delivery: Michele Brooks, 
Director, Program Development and Regulatory Analysis, USDA Rural 
Development, 1400 Independence Avenue, STOP 1522, Room 5159, 
Washington, DC 20250-1522.
    RUS will post all comments received without change, including any 
personal information that is included with the comment, on http://regulations.gov. Comments will be available for inspection online at 
http://www.regulations.gov and at the address listed above between 8:00 
a.m. and 4:30 p.m., Monday through Friday, except holidays. A copy of 
this rule is also available through the Rural Development homepage at 
http://www.rurdev.usda.gov/RDU_FederalRegisterPubs.html. Additional 
information about the Agency and its programs is available on the 
Internet at http://www.rurdev.usda.gov/index.html.

FOR FURTHER INFORMATION CONTACT: Kenneth Kuchno, Deputy Assistant 
Administrator, Policy and Outreach Division, Rural Development, U.S. 
Department of Agriculture, 1400 Independence Avenue SW., STOP 1590, 
Room 5151-S, Washington, DC 20250-1590. Telephone number: (202) 720-
9554, Facsimile: (202) 720-0810. Persons with disabilities or who 
require alternative means for communication should contact the USDA 
Target Center at (202) 720-2600.

SUPPLEMENTARY INFORMATION: 

Executive Order 12866

    This rule has been determined to be significant and was reviewed by 
the Office of Management and Budget under Executive Order 12866. In 
accordance with Executive Order 12866, an Economic Impact Analysis was 
completed, outlining the costs and benefits of implementing this 
program in rural America. The complete analysis is available from the 
Agency upon request. The following is the discussion of the Economic 
Benefits section of the Analysis.

Economic Benefits of Broadband Deployment in Rural Areas

    Bringing broadband services to rural areas does present some 
challenges. Because rural systems must contend with lower household 
density than urban systems, the cost to deploy fiber-to-the-home (FTTH) 
and 4G LTE systems in urban communities is considerably lower on a per 
household basis, making urban systems more economical to construct. 
Depending upon the technology deployed it can be more expensive to 
provide service to rural customers than to customers located in urban 
areas. Other associated rural issues, such as environmental challenges 
or providing wireless service through mountainous areas, also can add 
to the cost of deployment.
    Areas with low population size, locations that have experienced 
persistent population loss and an aging population, or places where 
population is widely dispersed over demanding terrain generally have 
difficulty attracting broadband service providers. These 
characteristics can make the fixed cost of providing broadband access 
too high, or limit potential demand, thus depressing the profitability 
of providing service. Clusters of lower service exist in sparsely 
populated areas, such as the Dakotas, eastern Montana, northern 
Minnesota, and eastern Oregon. Other low-service areas, such as the 
Missouri-Iowa border and Appalachia, have aging and declining numbers 
of residents. Nonetheless, rural areas in some States (such as 
Nebraska, Kansas, and Vermont) have higher-than expected broadband 
service, given their population characteristics, suggesting that 
policy, economic, and social factors can overcome common barriers to 
broadband expansion.
    In general, rural America has shared in the growth of the Internet 
economy. Online course offerings for students in primary, secondary, 
post-secondary, and continuing education programs have improved 
educational opportunities, especially in small, isolated rural areas. 
Interaction among students, parents, teachers, and school 
administrators has been enhanced via online forums, which is especially 
significant given the importance of ongoing parental involvement in 
children's education.
    Telemedicine and telehealth have been hailed as vital to health 
care provision in rural communities, whether simply improving the 
perception of locally provided health care quality or expanding the 
menu of medical services. More accessible health information, products, 
and services confer real economic benefits on rural communities, 
reducing transportation time and expenses, treating emergencies more 
effectively, reducing time missed at work, increasing local lab and 
pharmacy work, and providing savings to health facilities from 
outsourcing specialized medical procedures.
    Most employment growth in the U.S. over the last several decades 
has been in the service sector, a sector especially conducive for 
broadband applications. Broadband allows rural areas to compete for 
low- and high-end service jobs, from call centers to software 
development. Rural businesses have been adopting more e-commerce and 
Internet practices, improving efficiency and expanding market reach. 
Some rural retailers use the Internet to satisfy supplier requirements. 
The farm sector, a pioneer in rural Internet use, is increasingly 
comprised of farm businesses that purchase inputs and make sales 
online. Farm household characteristics such as age, education, presence 
of children, and household income are significant factors in adopting 
broadband Internet use, whereas distance from urban centers is not a 
factor. Larger farm businesses are more apt to use broadband in 
managing their operation; the more multifaceted the farm business, the 
more the farm uses the Internet.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance (CFDA) number assigned 
to this program is 10.886, Rural Broadband Access Loans and Loan 
Guarantees. The Catalog is available on the Internet and the General 
Services Administration's

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(GSA's) free CFDA Web site at http://www.cfda.gov. The CFDA Web site 
also contains a PDF file version of the Catalog that, when printed, has 
the same layout as the printed document that the Government Publishing 
Office (GPO) provides. GPO prints and sells the CFDA to interested 
buyers. For information about purchasing the Catalog of Federal 
Domestic Assistance from GPO, call the Superintendent of Documents at 
202-512-1800 or toll free at 866-512-1800, or access GPO's online 
bookstore at http://bookstore.gpo.gov.

Executive Order 12372

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

Executive Order 13563

    The agency has reviewed this regulation pursuant to E.O. 13563, 
issued on January 18, 2011 (76 FR 3281, January 21, 2011). E.O. 13563 
is supplemental to and explicitly reaffirms the principles, structures, 
and definitions governing regulatory review established in E.O. 12866. 
To the extent permitted by law, agencies are required by E.O. 13563 to: 
(1) Propose or adopt a regulation only upon a reasoned determination 
that its benefits justify its costs (recognizing that some benefits and 
costs are difficult to quantify); (2) tailor regulations to impose the 
least burden on society, consistent with obtaining regulatory 
objectives, taking into account, among other things, and to the extent 
practicable, the costs of cumulative regulations; (3) select, in 
choosing among alternative regulatory approaches, those approaches that 
maximize net benefits (including potential economic, environmental, 
public health and safety, and other advantages; distributive impacts; 
and equity); (4) to the extent feasible, specify performance 
objectives, rather than specifying the behavior or manner of compliance 
that regulated entities must adopt; and (5) identify and assess 
available alternatives to direct regulation, including providing 
economic incentives to encourage the desired behavior, such as user 
fees or marketable permits, or providing information upon which choices 
can be made by the public.

Information Collection and Recordkeeping Requirements

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35, as amended), the RUS invites comments on this information 
collection for which approval from the Office of Management and Budget 
(OMB) will be requested. These requirements have been approved by 
emergency clearance under OMB Control Number 0572-0130.
    Comments must be received by September 28, 2015.
    Comments are invited on (a) whether the 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 burden including the validity of 
the methodology and assumption 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 on 
other forms of information technology.
    Title: 7 CFR 1738, Rural Broadband Loan and Loan Guarantee Program.
    OMB Control Number: 0572-0130.
    Type of Request: Extension of an existing collection.
    Abstract: The Rural Utilities Service is authorized under Title VI 
of the Rural Electrification Act of 1936, as amended (RE Act), to 
provide loans and loan guarantees to fund the cost of construction, 
improvement, or acquisition of facilities and equipment for the 
provision of broadband service in eligible rural areas in States and 
Territories of the United States. In conjunction with this interim 
rulemaking, RUS is submitting an information collection package to OMB 
as required by the Paperwork Reduction Act of 1995. The information 
collection package for 7 CFR 1738 includes the estimated burden related 
to the application process for the Rural Broadband Loan and Loan 
Guarantee Program. Since the inception of the program in 2003, the 
Agency has tried to accurately determine the burden to respondents 
applying for a Rural Broadband Loan, including soliciting comments from 
the public. The items covered by this collection include forms and 
related documentation to support a loan application, including Form 532 
and its supporting schedules.
    The 2014 Farm Bill requires that the Agency be more transparent 
when identifying entities that are applying for funding, set the 
definition of unserved areas, address defaulted loans, and provide 
incentives for applicants to provide service in the most remote 
unserved rural areas. To accomplish the goals above, the Agency has: 
(1) Established a process for prioritizing applications; (2) set a 
minimum acceptable level of broadband service; (3) established a 
percentage of unserved households to receive broadband service; (4) 
provided additional details on the contents of applications; and (5) 
added additional incentives for reaching unserved areas.
    The Agency has addressed these issues as follows:
    Prioritizing Applications: To ensure that the priority requirements 
of the 2014 Farm Bill and this regulation are effectuated, a minimum of 
two evaluation periods will be established for ranking applications. At 
present, the Agency expects that evaluations will be conducted in March 
and September, but a notice in the Federal Register will be published, 
announcing the opening of each window and the deadlines for 
applications.
    Broadband Service: With the growing need for bandwidth in the 
medical and business environments, as well as for the average user, the 
2014 Farm Bill established a minimum acceptable level of broadband 
service at 4 megabits downstream and 1 megabit upstream, which the 
Agency will use as the benchmark for determining whether broadband 
service exists in an area. However, with respect to minimum standards 
for applications requesting funding, the Agency will be continuing its 
practice of a Broadband Lending Speed, which will require applicants to 
make available a minimum amount of bandwidth to all premises in the 
proposed funded service area. As with the prior broadband program, that 
standard will be updated from time to time in the Federal Register.
    The definitions for Broadband Service and the Broadband Lending 
Speed are integral parameters for the administration of this program 
and the determination of what entities are eligible to apply for funds. 
Although the minimum level for Broadband Service is established by 
statute in the 2014 Farm Bill, this regulation allows for the standard 
to be raised as the need for additional bandwidth is required by the 
public. Therefore, we are requesting and encouraging commenters to this 
regulation to make recommendations on the bandwidth requirements for 
both Broadband Service and the Broadband Lending Speed. The level for 
Broadband Service will be used to determine

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eligibility of a service area for funding and the level for the 
Broadband Lending Speed will set the bandwidth requirement that a 
proposed system must be able to provide to every customer in the 
service area.
    With the development of new applications and the need for greater 
bandwidth, the Agency strongly suggests that applicants applying for 
funding under this program consider system designs that will allow for 
25 megabits downstream and 3 megabits upstream. Building to these 
requirements will ensure that facilities that are constructed today 
will also be able to handle the needs of the future.
    Application Transparency: To ensure transparency for the Broadband 
Loan Program, the Agency's mapping tool will be modified to include the 
following information for each application:

1. Identity of the applicant
2. The areas to be served
3. The type of funding requested
4. The status of the application
5. The number of unserved households
6. A list of the census block groups to be served

    For all applications that are approved, an additional report will 
be posted that includes the name of the company receiving funding, type 
of funding received and the purposes of the funding.
    Additionally, in accordance with 2014 Farm bill requirements, a 
requirement has been added to require borrowers to submit semi-annual 
reports for three years after the completion of construction. It is 
anticipated that this reporting requirement will not become effective 
until approximately three years from the effective date of this 
rulemaking. At that time the agency will need to revise the information 
collection package associated with reporting requirements for the 
Broadband Loan Program (0572-0031). Information collected will consist 
of the following items;
    1. The number and location of residences and businesses that will 
receive service at or greater than the broadband lending speed;
    2. The types of facilities constructed and installed;
    3. The speed of the broadband services being delivered;
    4. The average price of the broadband services being delivered in 
each proposed service area;
    5. The broadband adoption rate for each proposed service territory, 
including the number of new subscribers generated from the facilities 
funded;
    This information will be used to analyze the effectiveness of the 
funding provided and will allow the Agency to track adoption rates as 
new and improved broadband services are being provided.
    The Agency seeks comments on its estimate of burden related to the 
application process for the Rural Broadband Program and welcomes 
comments related to further reducing application paperwork and costs. 
Specifically, comments should address the estimation of hour and cost 
burden associated with each component of RUS Form 532, available on the 
agency's Web site. Burden on respondents is considered to include the 
time, effort, and financial resources expended to generate, maintain, 
retain, disclose, or provide information to or for a Federal Agency. 
The Agency is also interested in determining the information that 
Broadband applicants would have on hand in a format that could be 
readily provided for the loan application and which items would be 
prepared by parties outside the applicant's organization. Comments may 
be sent to Michele Brooks, Director, Program Development and Regulatory 
Analysis, Rural Development, U.S. Department of Agriculture, 1400 
Independence Ave. SW., Stop 1522, Room 5159 South Building, Washington, 
DC 20250-1522 or via email to: [email protected].
    Estimate of Burden: Public reporting for this collection of 
information is estimated to average 425.5 hours per response.
    Respondents: Businesses and Not-for-profit institutions.
    Estimated Number of Respondents: 5.
    Estimated Total Annual Burden on Respondents: 2094.5 hours.
    Copies of this information collection can be obtained from Michele 
Brooks, Program Development and Regulatory Analysis, at (202) 690-1078.
    All responses to this information collection and recordkeeping 
notice will be summarized and included in the request for OMB approval. 
All comments will also become a matter of public record.

National Environmental Policy Act Certification

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

Regulatory Flexibility Act Certification

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this rule because the Agency is not required by 5 U.S.C. 
553 or any other provision of law to publish a notice of proposed 
rulemaking with respect to the subject matter of this rule.

Executive Order 12988

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

Unfunded Mandates

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

Executive Order 13132, Federalism

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

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This rule has been reviewed in accordance with the requirements of 
Executive Order 13175, ``Consultation and Coordination with Indian 
Tribal Governments.'' Executive Order 13175 requires Federal agencies 
to consult and coordinate with tribes on a government-to-government 
basis on policies that have tribal implications, including regulations, 
legislative comments or proposed legislation, and other policy 
statements or actions that have substantial direct effects on one or 
more Indian tribes, on the relationship

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between the Federal Government and Indian tribes or on the distribution 
of power and responsibilities between the Federal Government and Indian 
tribes.
    Rural Development has assessed the impact of this rule on Indian 
tribes and determined that this rule does not, to our knowledge, have 
tribal implications that require tribal consultation under E.O. 13175. 
However, since deploying broadband infrastructure throughout Indian 
Country presents unique challenges, the Agency commits to provide at 
least one Tribal Consultation focused on those unique challenges (and 
potential solutions) prior to the implementation of this rule. If a 
Tribe requests consultation, Rural Development will work with the 
Office of Tribal Relations to ensure meaningful consultation is 
provided where changes, additions and modifications identified herein 
are not expressly mandated by Congress. If a tribe would like to engage 
in consultation with Rural Development on this rule, please contact 
Rural Development's Native American Coordinator at (720) 544-2911 or 
[email protected].

E-Government Act Compliance

    The Agency is committed to the E-Government Act, which requires 
Government agencies in general to provide the public the option of 
submitting information or transacting business electronically to the 
maximum extent possible. The Agency is currently developing an online 
application system that will replace the existing manual process for 
submitting applications.

Background

A. Introduction

    The Agency improves the quality of life in rural America by 
providing investment capital for deployment of rural telecommunications 
infrastructure. In order to achieve the goal of increasing economic 
opportunity in rural America, the Agency finances infrastructure that 
enables access to a seamless, nationwide telecommunications network. 
With access to the same advanced telecommunications networks as its 
urban counterparts, especially those designed to accommodate distance 
learning, telework, and telemedicine, rural America will eventually see 
improving educational opportunities, health care, economies, safety and 
security, and ultimately higher employment. The Agency shares the 
assessment of Congress, State and local officials, industry 
representatives, and rural residents that broadband service is a 
critical component to the future of rural America. The Agency is 
committed to ensuring that rural America will have access to 
affordable, reliable, broadband services and to provide a healthy, 
safe, and prosperous place to live and work.

B. Regulatory History

    On May 13, 2002, the Farm Security and Rural Investment Act of 
2002, Public Law 107-171 (2002 Farm Bill) was signed into law. The 2002 
Farm Bill amended the Rural Electrification Act of 1936 to include 
Title VI, the Rural Broadband Access Loan and Loan Guarantee Program 
(Broadband Loan Program), to be administered by the Agency. Title VI 
authorized the Agency to approve loans and loan guarantees for the 
costs of construction, improvement, and acquisition of facilities and 
equipment for broadband service in eligible rural communities. Under 
the 2002 Farm Bill, the Agency was directed to promulgate regulations 
without public comment. Implementing the program required a different 
lending approach for the Agency than it employed in its earlier 
telephone program because of the unregulated, highly competitive, and 
technologically diverse nature of the broadband market. Those 
regulations were published on January 30, 2003, at 68 FR 4684.
    In an attempt to enhance the Broadband Loan Program and to 
acknowledge growing criticism of funding competitive areas, the Agency 
proposed to amend the program's regulations on May 11, 2007, at 72 FR 
26742. As the Agency began analysis of the public comments it received 
on the proposed regulations, the Food, Conservation, and Energy Act of 
2008 (2008 Farm Bill) was working its way through Congress. On March 
14, 2011, the Agency published an interim rule implementing the 
requirements of the 2008 Farm Bill and started accepting applications. 
The Agency did not receive any significant comments to the interim rule 
and published a final rule on February 6, 2013. With the enactment of 
the Agricultural Act of 2014 (2014 Farm Bill) Section 6104, Public Law 
113-79 (Feb. 7, 2014), additional requirements were added to the 
Broadband Loan Program, including the prioritization of approving 
applications, a minimum benchmark of broadband service, a more 
transparent public notice requirement, and the first statutorily 
required reporting standards, all of which are implemented in this 
rule.

C. Presidential Memorandum

    On March 23, 2015, a Presidential Memorandum was issued for 
Expanding Broadband Deployment and Adoption by Addressing Regulatory 
Barriers and Encouraging Investment and Training. The memorandum states 
that it shall be the policy of the Federal Government for executive 
departments and agencies having statutory authorities applicable to 
broadband deployment (agencies) to use all available and appropriate 
authorities to: Identify and address regulatory barriers that may 
unduly impede either wired broadband deployment or the infrastructure 
to augment wireless broadband deployment; encourage further public and 
private investment in broadband networks and services; promote the 
adoption and meaningful use of broadband technology; and otherwise 
encourage or support broadband deployment, competition, and adoption in 
ways that promote the public interest. In addition to assist in this 
effort, there is established the Broadband Opportunity Council 
(Council), to be co-chaired by the Secretaries of Commerce and 
Agriculture, or their designees. In addition to the Co-Chairs, the 
Council shall include the heads, or their designees, of:
    i. The Department of Defense;
    ii. the Department of State;
    iii. the Department of the Interior;
    iv. the Department of Labor;
    v. the Department of Health and Human Services;
    vi. the Department of Homeland Security;
    vii. the Department of Housing and Urban Development;
    viii. the Department of Justice;
    ix. the Department of Transportation;
    x. the Department of the Treasury;
    xi. the Department of Energy;
    xii. the Department of Education;
    xiii. the Department of Veterans Affairs;
    xiv. the Environmental Protection Agency;
    xv. the General Services Administration;
    xvi. the Small Business Administration;
    xvii. the Institute of Museum and Library Services;
    xviii. the National Science Foundation;
    xix. the Council on Environmental Quality;
    xx. the Office of Science and Technology Policy;
    xxi. the Office of Management and Budget;
    xxii. the Council of Economic Advisers;
    xxiii. the Domestic Policy Council;
    xxiv. the National Economic Council;
    xxv. the National Security Council staff; and
    xxvi. such other Federal agencies or entities as determined 
appropriate

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pursuant to subsection (c) of this section.

D. Rule Changes

    The following summarizes the substantive changes introduced in this 
rule. The changes are presented in the order in which they appear 
within the interim rule.
Subpart A--General
Section 1738.2 Definitions
    Broadband service--This definition was modified to incorporate the 
2014 Farm Bill's requirement that the minimum level of broadband 
service be initially set to 4 megabits downstream and 1 megabit 
upstream, and reviewed by the Agency at least once every 2 years, and 
adjusted as necessary through a notice published in the Federal 
Register, in order to ensure that high quality, cost-effective 
broadband service is being provided to rural areas. This definition 
will be used to determine if a rural area is eligible for funding.
    Incumbent service provider--This definition was modified so as not 
to automatically eliminate an existing service provider from being 
counted as an incumbent service provider if the provider did not 
respond to the public notice filing for new applications.
    The 2014 Farm Bill requires that the Agency use all means available 
to determine if an incumbent service provider is present in a proposed 
funded service area. As a result, only in cases where the Agency is 
unable to make an incumbent determination without input from the 
provider, will a provider not be counted as an incumbent for not 
responding to a request for information. The determination of incumbent 
service providers is critical to whether a loan is eligible for the 
broadband program.
    Interim financing--This definition was modified to make only 
construction started after a loan has been offered as eligible for 
reimbursement, as opposed to the prior rule which allowed for 
construction started after an application was deemed ``complete'' to be 
eligible for reimbursement. Because of the new requirement to 
prioritize applications within at least two evaluation periods, and not 
process applications on a first-come, first-served basis, applications 
which are feasible, but not the highest priority, may never be funded. 
As a result, the Agency has changed its policy on when construction is 
eligible for reimbursement.
    Unserved household or unserved area--The 2014 Farm Bill removed the 
definition for underserved and introduced the definition of unserved. 
All proposed funded service areas must include a minimum of fifteen 
percent unserved households.
Section 1738.3 Substantially Underserved Trust Area
    In March of 2012, the Agency published 7 CFR part 1700 as a final 
rule instituting eligibility requirements for classifying an area as a 
Substantially Underserved Trust Area and making certain considerations 
available for those areas that qualify. The changes to this section 
incorporate this regulation by reference and allow for applicants to 
seek classification as a Substantially Underserved Trust Area and 
associated benefits of this classification.
Subpart B--Eligible and Ineligible Loan Purposes
    Section 1738.51(b)--A statement was added to this section to 
clarify that if an Indefeasible Right to Use (IRU) agreement qualifies 
as a capital lease, the entire cost of the lease will be amortized over 
the life of the lease and that only the first three years of the 
amortization period can be funded.
Subpart C--Eligibility Requirements
    Section 1738.101(b)(2)--The existing regulations require that 
facilities be constructed within three years from the time loan funds 
are made available. Given the many factors affecting when loan funds 
are available, the Agency has decided to simplify this requirement by 
making funds available 120 days after the date of the loan contract, 
which is the time allotted for closing a loan. The three-year 
construction period will commence 120 days after the date of the loan 
contract. This uniform change will bring clarity to applicants and 
assist their budgeting of time.
    Section 1738.102(c)--This section was added to address the new 2014 
Farm Bill requirement that the Agency determine if there are incumbent 
service providers in a proposed funded service area. In addition to the 
current use of the public notice process, the Agency will now utilize 
the National Broadband Map and any other data that may be available 
detailing service provider information in the affected area to make 
this determination. This process will assist the Agency in identifying 
ineligible areas, despite any non-responses from existing service 
providers.
Subpart D--Direct Loan Terms
    Section 1738.155--Most areas in the U.S. that still do not have 
broadband service are areas with low population densities or very tough 
geographic conditions which impede construction. Under these 
conditions, it is very difficult to develop a feasible business plan 
that the Agency can fund. To assist and encourage companies to venture 
into difficult rural areas, the 2014 Farm Bill permitted modifications 
to the standard lending terms. As a result, the Agency, at its 
discretion, may consider the following for applications that propose to 
serve areas that contain a minimum of 50 percent unserved households 
and that request special terms: (1) An extension of the standard 2-year 
principal deferral period up to a maximum of 4 years; (2) an extension 
of the maturity period beyond economic life of the assets; and (3) a 
modification to the security arrangements for the loan. These three 
options individually or together may assist in the development of a 
successful business by reducing the initial debt service payments and 
allowing borrowers more time to develop operations and positive cash 
flow. Special terms are only authorized to the extent they are 
necessary to achieve financial feasibility and long-term sustainability 
of these projects.
Subpart E--Application Review and Underwriting
    Section 1738.203--In accordance with 2014 Farm Bill requirements, 
this section has been modified to require applications to be evaluated 
and prioritized no less than twice a year, based on the number of 
unserved household proposed to receive service at the broadband lending 
speed. This process will ensure that the maximum number of unserved 
residents and businesses receive broadband service.
    National and State reserves will be established based on the amount 
of funding provided for any given fiscal year. Please note that 
depending on the amount of funding provided, it may not be appropriate 
to establish State reserves.
    Section 1738.204--To better inform the public of the applications 
that are being submitted for financial assistance, the public notice 
that the Agency publishes through the use of the Agency's mapping tool 
will now include the following additional information: (1) Amount and 
type of funding requested; (2) status of the review of the application; 
(3) the number of unserved households in the application; and (4) a 
list of census block groups to be served. In addition, for all approved 
applications, an additional notice will be published on the Agency Web 
page that includes the name of the entity being funded, the type of 
funding received, and the purpose of the assistance. All applicants

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that are approved for funding will also be required to submit 
semiannual reports that will be published on the Web page. This 
information will better allow the public to understand where taxpayer 
dollars are being spent and what is being accomplished.
Subpart F--Closing, Servicing and Reporting
    Section 1738.254--In accordance with 2014 Farm Bill requirements, 
an additional requirement has been added to this section that requires 
borrowers to submit semi-annual reports for three years after the 
completion of construction. The report must include the purpose of the 
financing, number and location of the premises served, speed of the 
broadband service being delivered, average price of the services and 
the adoption rate of the services being provided. This report will 
allow the Agency to better track the progress of the loan and validate 
that the funds are being used for the purposes in the application.
    The Agency urges all interested parties to provide comments. Please 
see instructions on how to do so in the ADDRESSES section of this 
document.
USDA Nondiscrimination 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).

List of Subjects in 7 CFR Part 1738

    Broadband, Loan programs--communications, Rural areas, Telephone, 
Telecommunications.
    Accordingly, chapter XVII, title 7, Code of Federal Regulations is 
amended by revising part 1738 to read as follows:

PART 1738--RURAL BROADBAND ACCESS LOANS AND LOAN GUARANTEES

Subpart A--General
1738.1 Overview.
1738.2 Definitions.
1738.3 Substantially underserved trust areas.
1738.4-1738.50 [Reserved]
Subpart B--Eligible and Ineligible Loan Purposes
1738.51 Eligible loan purposes.
1738.52 Ineligible loan purposes.
1738.53-1738.100 [Reserved]
Subpart C--Eligibility Requirements
1738.101 Eligible applicants.
1738.102 Eligible service area.
1738.103 Eligible service area exceptions for broadband facility 
upgrades.
1738.104 Preliminary assessment of service area eligibility.
1738.105-1738.150 [Reserved]
Subpart D--Direct Loan Terms
1738.151 General.
1738.152 Interest rates.
1738.153 Loan terms and conditions.
1738.154 Loan security.
1738.155 Special terms and conditions.
1738.156 Other Federal requirements.
1738.157-1738.200 [Reserved]
Subpart E--Application Review and Underwriting
1738.201 Application submission.
1738.202 Elements of a complete application.
1738.203 Priority for processing loan applications.
1738.204 Public notice.
1738.205 Notification of completeness.
1738.206 Evaluation for feasibility.
1738.207 Equity requirement.
1738.208 Additional cash requirements.
1738.209 Market survey.
1738.210 Competitive analysis.
1738.211 Financial information.
1738.212 Network design.
1738.213 Loan determination.
1738.214-1738.250 [Reserved]
Subpart F--Closing, Servicing, and Reporting
1738.251 Loan offer and loan closing.
1738.252 Construction.
1738.253 Servicing.
1738.254 Accounting, reporting, and monitoring requirements.
1738.255 Default and de-obligation.
1738.256-1738.300 [Reserved]
Subpart G--Loan Guarantee
1738.301 General.
1738.302 Eligible guaranteed lenders.
1738.303 Requirements for the loan guarantee.
1738.304 Terms for guarantee.
1738.305 Obligations of guaranteed lender.
1738.306 Agency rights and remedies.
1738.307 Additional policies.
1738.308 Full faith and credit of the United States.
1738.309-1738.349 [Reserved]
1738.350 OMB control number.

    Authority:  7 U.S.C. 901 et seq.

Subpart A--General


Sec.  1738.1  Overview.

    (a) The Rural Broadband Access Loan and Loan Guarantee Program 
furnishes loans and loan guarantees for the costs of construction, 
improvement, or acquisition of facilities and equipment needed to 
provide service at the broadband lending speed in eligible rural areas. 
This part sets forth the general policies, eligibility requirements, 
types and terms of loans and loan guarantees, and program requirements 
under 7 U.S.C. 901 et seq.
    (b) Additional information and application materials regarding the 
Rural Broadband Access Loan and Loan Guarantee Program can be found on 
the Rural Development Web site.


Sec.  1738.2  Definitions.

    (a) The following definitions apply to part 1738:
    Acquisition means the purchase of assets by acquiring facilities, 
equipment, operations, licenses, or majority stock interest of one or 
more organizations. Stock acquisitions must be arm's-length 
transactions.
    Administrator means the Administrator of the Rural Utilities 
Service (RUS), or the Administrator's designee.

[[Page 45403]]

    Advance means the transfer of loan funds from the Agency to the 
borrower.
    Affiliate or affiliated company of any specified person or entity 
means any other person or entity directly or indirectly controlling of, 
controlled by, under direct or indirect common control with, or related 
to, such specified entity, or which exists for the sole purpose of 
providing any service to one company or exclusively to companies which 
otherwise meet the definition of affiliate. This definition includes 
Variable Interest Entities as described in Financial Accounting 
Standards Board Interpretation (FIN) No. 46(R), Consolidation of 
Variable Interest Entities. For the purpose of this definition, 
``control'' means the possession directly or indirectly, of the power 
to direct or cause the direction of the management and policies of a 
company, whether such power is exercised through one or more 
intermediary companies, or alone, or in conjunction with or pursuant to 
an agreement with, one or more other companies, and whether such power 
is established through a majority or minority ownership voting of 
securities, common directors, officers, or stockholders, voting trust, 
or holding trusts (other than money exchanged) for property or 
services.
    Agency means the Rural Utilities Service, which administers the 
United States Department of Agriculture's (USDA's) Rural Development 
Utilities Programs, including the Rural Broadband Access Loan and Loan 
Guarantee Program.
    Applicant means an entity requesting approval of a loan or loan 
guarantee under this part.
    Arm's-length transaction means a transaction between two related or 
affiliated parties that is conducted as if they were unrelated, so that 
there is no question of conflict of interest, or a transaction between 
two otherwise unrelated or unaffiliated parties.
    Borrower means any organization that has an outstanding broadband 
or telecommunications loan made or guaranteed by the Agency.
    Broadband borrower means any organization that has an outstanding 
broadband loan made or guaranteed by the Agency.
    Broadband grant means a Community Connect or Broadband Initiatives 
Program grant approved by the Agency.
    Broadband lending speed means the minimum bandwidth requirement, as 
published by the Agency in its latest notice in the Federal Register 
that an applicant must propose to deliver to every customer in the 
proposed funded service area in order for the Agency to approve a 
broadband loan and may be different for fixed and mobile broadband 
service. Broadband lending speed may be faster than the minimum 
transmission capacity required to determine the availability of 
broadband service when qualifying a service area. If a new broadband 
lending speed is published in the Federal Register while an application 
is pending, the pending application will be processed based on the 
broadband lending speed that was in effect when the application was 
submitted.
    Broadband loan means any loan approved under Title VI of the Rural 
Electrification Act of 1936, as amended (RE Act).
    Broadband service means any technology identified by the 
Administrator as having the capacity to provide transmission facilities 
that enable the subscriber to receive a minimum level of service equal 
to at least a downstream transmission capacity of 4 megabits per second 
(Mbps) and an upstream transmission capacity of 1 Mbps. The Agency will 
publish the minimum transmission capacity that will qualify as 
broadband service in a notice in the Federal Register and this rate may 
be different for fixed and mobile broadband service. The minimum 
transmission capacity may be higher than 4 Mbps downstream and 1 Mbps 
upstream but cannot be lower. The minimum transmission capacity that 
defines broadband service may be different than the broadband lending 
speed. If a new minimum transmission capacity is published in the 
Federal Register while an application is pending, broadband service for 
the purpose of reviewing the application will be defined by the minimum 
transmission capacity that was required at the time the application was 
received by the Agency.
    Build-out means the construction, improvement, or acquisition of 
facilities and equipment.
    Competitive analysis means a study that identifies service 
providers and products in the service area that will compete with the 
applicant's operations.
    Composite economic life means the weighted (by dollar amount of 
each class of facility in the loan) average economic life as determined 
by the Agency of all classes of facilities financed by the loan.
    Cost share means equity, as defined by generally accepted 
accounting principles (GAAP).
    Customer premises equipment (CPE), in the context of network 
services, means any network-related equipment used by a customer to 
connect to a service provider's network.
    Economic life means the estimated useful service life of an asset 
financed by the loan, as determined by the Agency.
    Equity means total assets minus total liabilities, as determined by 
GAAP and as classified according to the Agency's system of accounts, 
and as used in this Part for purposes of section 306F of the RE Act (7 
U.S.C. 936f) includes the requirements of credit support and cost share 
in Title VI of the RE Act.
    Feasibility study means the evaluation of the pro forma financial 
analysis prepared by the Agency, based on the financial projections 
supplied by the applicant and as found acceptable by the Agency, to 
determine the financial feasibility of a loan request.
    Financial feasibility means the applicant's ability to generate 
sufficient revenues to cover its expenses, sufficient cash flow to 
service its debts and obligations as they come due, and meet the 
minimum Times Interest Earned Ratio (TIER) requirement of 1.25 (see 
Sec.  1738.211(b)(2)(ii)) by the end of the forecast period, as 
evaluated by the Agency. Financial feasibility of a loan application is 
based on five-year projections, and will be based on the entire 
operation of the applicant and not limited to the funded project.
    Fiscal year refers to the applicant or borrower's fiscal year, 
unless otherwise indicated.
    Forecast period means the time period used in the feasibility study 
to determine if an application is financially feasible.
    GAAP means generally accepted accounting principles.
    Grantee means any organization that has an outstanding broadband 
grant made by the Agency, with outstanding obligations under the grant.
    Guaranteed loan amount means the amount of the loan which is 
guaranteed by the Agency.
    Guaranteed loan note means, collectively, the note or notes 
executed and delivered by the borrower to evidence the guaranteed loan.
    Guaranteed loan portion means any portion of the guaranteed loan.
    Guaranteed loan portion amount means that amount of payment on 
account of any guaranteed loan portion which is guaranteed under the 
terms of the guarantee.
    Guaranteed loan portion note means any note executed and delivered 
by the borrower to evidence a guaranteed loan portion.
    Incumbent service provider means a service provider that: Offers 
terrestrial broadband service in the proposed

[[Page 45404]]

funded service area and has not less than five percent of the 
households in an applicant's proposed funded service area subscribing 
to their broadband service at the time of application submission. 
Resellers are not considered incumbent service providers. If an 
applicant proposes an acquisition, the applicant will be considered a 
service provider for that area.
    Indefeasible right to use agreement (IRU) means the effective long-
term lease of the capacity, or a portion thereof, of a cable, specified 
in terms of a certain amount of bandwidth or a certain number of dark 
fibers.
    Interim financing means funds used for eligible loan purposes after 
a loan offer has been extended to the applicant by the Agency. Such 
funds may be eligible for reimbursement from loan funds if a loan is 
made.
    Loan means any loan made or guaranteed under this part by the 
Agency, unless otherwise noted.
    Loan contract means the loan agreement between the Agency and the 
borrower, including all amendments thereto.
    Loan documents mean the loan agreement, note(s), and security 
instrument(s) between the borrower and the Agency and any associated 
documents pertaining to the broadband loan.
    Loan guarantee means a guarantee of a loan, or a portion of a loan, 
made by another lender
    Loan guarantee documents means the guarantee agreement between RUS 
and the lender, the loan and security agreement(s) between the 
guaranteed lender and the borrower, the loan note guarantee made by 
RUS, the guaranteed loan note, and other security documents.
    Loan funds means funds provided pursuant to a broadband loan made 
or guaranteed under this part by the Agency.
    Market survey means the collection of information on the supply, 
demand, usage, and rates for proposed services to be offered by an 
applicant within each service area. It supports the applicant's 
financial projections.
    Pre-loan expense means any expense associated with the preparation 
of a loan application. Pre-loan expenses may be reimbursed with loan 
funds, as approved by RUS.
    Proposed Funded Service Area means the geographic service territory 
within which the applicant is proposing to offer service at the 
broadband lending speed.
    RE Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    Reject means that the Agency returns the application to the 
applicant and discontinues processing of the loan application because 
the application failed to meet the requirements of this part.
    Reseller means, in the context of network services, a company that 
purchases network services from network service providers in bulk and 
resells them to commercial businesses and residential households. 
Resellers are not considered incumbent service providers.
    Rural area(s) means any area, as confirmed by the latest decennial 
census of the Bureau of the Census, which is not located within:
    (i) A city, town, or incorporated area that has a population of 
greater than 20,000 inhabitants; or
    (ii) An urbanized area contiguous and adjacent to a city or town 
that has a population of greater than 50,000 inhabitants. For purposes 
of the definition of rural area, an urbanized area means a densely 
populated territory as defined in the latest decennial census of the 
U.S. Census Bureau.
    Security documents means any mortgage, deed of trust, security 
agreement, financing statement, or other document which grants to the 
Agency or perfects a security interest, including any amendments and 
supplements thereto.
    Service area means the geographic area within which a service 
provider offers telecommunications service.
    Service provider means an entity providing telecommunications 
service.
    Service territory means ``service area.''
    Start-up means a new business venture without operations or service 
delivery available.
    System of accounts means the Agency's system of accounts for 
maintaining financial records as described in RUS Bulletin 1770B-1, 
found on the agency's Web site.
    Telecommunications means electronic transmission and reception of 
voice, data, video, and graphical information using wireline and 
wireless transmission media.
    Telecommunications loan means any telecommunication loan made or 
guaranteed under Title II, III, or IV of the RE Act.
    TIER means times interest earned ratio. TIER is the ratio of an 
applicant's net income (after taxes) plus (adding back) interest 
expense, all divided by interest expense (existing and that required in 
the proposed loan), and with all financial terms defined by GAAP.
    Unguaranteed loan amount means all amounts of payment on account of 
the guaranteed loan other than the guaranteed amount.
    Unguaranteed loan portion amount means all amounts of payment on 
account of any guaranteed loan portion other than the respective 
guaranteed loan portion amount.
    Unserved household or Unserved area means a household or an area 
that is not offered broadband service.
    (b) Accounting terms not otherwise defined in this part shall have 
the definition ascribed to them under GAAP and shall be recorded using 
the Agency's system of accounts.


Sec.  1738.3  Substantially underserved trust areas.

    (a) If the Administrator determines that a community within ``trust 
land'' (as defined in 38 U.S.C. 3765) has a high need for the benefits 
of the Broadband Loan Program, he/she may designate the community as a 
``substantially underserved trust area'' (as defined in section 306F of 
the RE Act).
    (b) To receive consideration as a substantially underserved trust 
area, the applicant must submit to the Agency a completed application 
that includes all of the information requested in 7 CFR part 1700, 
subpart D. In addition, the applicant must notify the Agency in writing 
that it seeks consideration as a substantially underserved trust area 
and identify the discretionary authorities of 7 CFR part 1700, subpart 
D, it seeks to have applied to its application. Note, however, that 
given the prohibition on funding operating expenses in the Broadband 
Program, requests for waiver of the equity or the additional cash 
requirements cannot be considered.


Sec. Sec.  1738.4-1738.50   [Reserved]

Subpart B--Eligible and Ineligible Loan Purposes


Sec.  1738.51  Eligible loan purposes.

    Loan funds may be used to pay for any of the following expenses:
    (a) To fund the construction, improvement, or acquisition of all 
facilities required to provide service at the broadband lending speed 
to rural areas, including facilities required for providing other 
services over the same facilities.
    (b) To fund the cost of leasing facilities required to provide 
service at the broadband lending speed if such lease qualifies as a 
capital lease under GAAP. Notwithstanding, loan funds can only be used 
to fund the cost of the capital lease for no more than the first three 
years of the loan amortization period. If an IRU qualifies as a capital 
lease, the entire cost of the lease will be amortized over the life of 
the lease and

[[Page 45405]]

only the first three years of the amortized cost can be funded.
    (c) To fund an acquisition, provided that:
    (1) The acquisition is necessary for furnishing or improving 
service at the broadband lending speed;
    (2) The acquired service area, if any, meets the eligibility 
requirements set forth in Sec.  1738.102;
    (3) The acquisition cost does not exceed 50 percent of the 
broadband loan amount; and
    (4) For the acquisition of another entity, the purchase provides 
the applicant with a controlling majority interest in the entity 
acquired.
    (d) To refinance an outstanding telecommunications loan made under 
the RE Act if refinancing the loan supports the construction, 
improvement, or acquisition of facilities and equipment for the 
provision of service at the broadband lending speed in rural areas 
provided that:
    (1) No more than 40 percent of the broadband loan amount is used to 
refinance the outstanding telecommunications loan;
    (2) The applicant is current with its payments on the 
telecommunication loan(s) to be refinanced; and
    (3) The amortization period for that portion of the broadband loan 
that will be needed for refinancing will not exceed the remaining 
amortization period for the telecommunications loan(s) to be 
refinanced. If multiple notes are being refinanced, an average 
remaining amortization period will be calculated based on the weighted 
dollar average of the notes being refinanced.
    (e) To fund pre-loan expenses in an amount not to exceed five 
percent of the broadband loan excluding amounts requested to refinance 
outstanding telecommunication loans. Pre-loan expenses may be 
reimbursed only if they are incurred prior to the date on which 
notification of a complete application is issued (see Sec.  1738.205), 
they meet the requirements for reimbursement (found on the agency's Web 
site) and a loan contract is entered into with RUS.


Sec.  1738.52  Ineligible loan purposes.

    Loan funds must not be used for any of the following purposes:
    (a) To fund operating expenses of the applicant;
    (b) To fund any costs associated with the project incurred prior to 
the date on which notification of a complete application is issued (see 
Sec.  1738.205), except for eligible pre-loan expenses (see Sec.  
1738.51(e)).
    (c) To fund the acquisition of the stock of an affiliate.
    (d) To fund the purchase or acquisition of any facilities or 
equipment of an affiliate, unless approved by the Agency in writing. 
The Agency may approve such a purchase or acquisition if the applicant 
demonstrates that the purchase or acquisition will involve an arms-
length transaction and that the cost is advantageous for the applicant.
    (e) To fund the purchase of CPE and the installation of associated 
inside wiring, unless the CPE will be owned by the applicant throughout 
its economic life: or
    (1) The applicant pledges additional collateral that is not 
currently owned by the applicant, acceptable to the Agency. Such 
collateral must have a value at least equal to the purchase price of 
the CPE and cannot be purchased with loan funds; or
    (2) The applicant establishes a revolving fund for the initial 
purchase of CPE to be sold, and as CPE is sold to the customer, at 
least the applicant's cost of such equipment is returned to the 
revolving fund and used to purchase additional CPE units.
    (f) To fund the purchase or lease of any vehicle unless it is used 
primarily in construction or system improvements.
    (g) To fund the cost of systems or facilities that have not been 
designed and constructed in accordance with the loan contract and other 
applicable requirements.
    (h) To fund broadband facilities leased under the terms of an 
operating lease.
    (i) To fund merger or consolidation of entities.


Sec. Sec.  1738.53--1738.100   [Reserved]

Subpart C--Eligibility Requirements


Sec.  1738.101  Eligible applicants.

    (a) To be eligible for a broadband loan, an applicant may be either 
a nonprofit or for-profit organization, and must take one of the 
following forms:
    (1) Corporation;
    (2) Limited liability company (LLC);
    (3) Cooperative or mutual organization;
    (4) Indian tribe or tribal organization as defined in 25 U.S.C. 
450b; or
    (5) State or local government, including any agency, subdivision, 
or instrumentality thereof.
    (b) To be eligible for a broadband loan, the applicant must:
    (1) Submit a loan application which meets the requirements set 
forth in this part as well as any additional requirements published in 
the Federal Register;
    (2) Agree to complete the build-out of the broadband system 
described in the loan application within three years from the day the 
applicant is notified that loan funds are available. Under the terms of 
the loan documents, this three-year period will commence 120 days after 
the date of the loan contract. The loan application must demonstrate 
that all proposed construction can be completed within this three-year 
period with the exception of CPE. CPE can be funded throughout the 
forecast period;
    (3) Demonstrate an ability to furnish, improve, or extend broadband 
facilities to provide service at the broadband lending speed in the 
proposed funded service area;
    (4) Demonstrate an equity position equal to at least 10 percent of 
the amount of the loan requested in the application (see Sec.  
1738.207); and
    (5) Provide additional security if it is necessary to ensure 
financial feasibility (see Sec.  1738.208) as determined by the 
Administrator.


Sec.  1738.102  Eligible service area.

    (a) A service area may be eligible for a broadband loan if all of 
the following are true:
    (1) The proposed funded service area is completely contained within 
a rural area;
    (2) At least 15 percent of the households in the proposed funded 
service area are unserved households;
    (3) No part of the proposed funded service area has three or more 
incumbent service providers; and
    (4) No part of the proposed funded service area overlaps with the 
service area of current RUS borrowers, nor the services areas of 
grantees that were funded by RUS.
    (b) Multiple service areas may be included in a single broadband 
loan application. Non-contiguous areas are considered separate service 
areas and must be treated separately for the purpose of determining 
service area eligibility. If non-contiguous areas within an application 
are determined to be ineligible, the Agency may consider the remaining 
areas in the application for eligibility. If an applicant fails to 
respond to Agency requests for additional information or modifications 
to remove ineligible areas, the application will be rejected.
    (c) If no existing broadband service provider responds to the 
Public Notice as described in Sec.  1738.204(b), then the number of 
incumbent service providers for Sec.  1738.102(a)(3) will be determined 
by using:
    (1) The most current National Broadband Map; or

[[Page 45406]]

    (2) Any other data regarding the availability of broadband service 
that the Secretary may collect or obtain through reasonable efforts.
    (d) If a service provider is identified by methods described in 
paragraphs (c)(1) or (2) of this section, and the Agency is unable to 
determine whether such provider is an incumbent service provider, as 
defined herein, then the Agency will request the service provider to 
provide information responding to the Public Notice for the loan 
application, demonstrating that they meet the definition for an 
incumbent service provider. If the service provider does not respond to 
the Agency's request within 30 calendar days providing the necessary 
information to make a determination, the provider will not be 
considered an incumbent service provider.


Sec.  1738.103  Eligible service area exceptions for broadband facility 
upgrades.

    (a) Broadband borrowers that apply to upgrade existing broadband 
facilities in their existing service area are exempt from the 
requirement concerning the number of unserved households in Sec.  
1738.102(a)(2).
    (b) Incumbent service providers, including borrowers and grantees, 
which apply to upgrade existing broadband facilities in existing 
service territories are exempt from the requirement concerning the 
number of incumbent service providers in Sec.  1738.102(a)(3) unless 
they are eligible for funding under Titles II and III of the RE Act. 
Eligibility requirements for entities that would be eligible under 
Titles II and III can be found in 7 CFR part 1735.
    (c) An applicant which is a borrower, grantee or incumbent service 
provider may submit one application to upgrade existing broadband 
facilities in existing service areas, which qualify for the exemptions 
specified in paragraphs (a) and (b) of this section, and to expand 
services at the broadband lending speed into new service areas, 
provided the upgrade area and the expansion area are proposed as two 
separate service areas even if the upgrade and expansion areas are 
contiguous.
    (d) The applicant will be asked to remove areas determined to be 
ineligible from their funding request or provide funds other than loan 
funds for these areas. The application will then be evaluated on the 
basis of what remains. The applicant may be requested to provide 
additional information to the Agency relating to the ineligible areas. 
If the applicant fails to respond, the application will be returned.


Sec.  1738.104  Preliminary assessment of service area eligibility.

    (a) Upon request, the Agency will make information available to 
prospective applicants to allow a preliminary assessment of a proposed 
service area's eligibility. At a minimum, the prospective applicant 
will be able to determine:
    (1) Whether the proposed service area is located in a rural area;
    (2) Whether the proposed service area overlaps with any part of a 
borrower's or grantee's service area; and
    (3) Whether the proposed service area overlaps with any part of a 
proposed service area in a pending application for a loan.
    (b) A preliminary assessment of service area eligibility does not 
account for all eligibility factors, and the situation within a 
proposed service area may change between the preliminary assessment and 
application submission. A preliminary assessment indicating that a 
proposed service area may be eligible does not guarantee that the area 
will remain eligible at the time of application.


Sec. Sec.  1738.105--1738.150  [Reserved]

Subpart D--Direct Loan Terms


Sec.  1738.151  General.

    (a) Direct loans shall be in the form of a cost-of-money loan, a 4 
percent loan, or a combination of the two.
    (b) The amount of funds available for each type of loan, as well as 
maximum and minimum loan amounts will be published in the Federal 
Register.
    (c) An applicant that provides telecommunications or broadband 
service to at least 20 percent of the households in the United States 
is limited to a loan amount that is no more than 15 percent of the 
funds available to the Broadband Loan Program for the Federal fiscal 
year.


Sec.  1738.152  Interest rates.

    (a) Direct cost-of-money loans shall bear interest at a rate equal 
to the cost of borrowing to the Department of Treasury for obligations 
of comparable maturity. The applicable interest rate will be set at the 
time of each advance.
    (b) [Reserved]


Sec.  1738.153  Loan terms and conditions.

    Terms and conditions of loans are set forth in a mortgage, note, 
and loan contract. Samples of the mortgage, note, and loan contract can 
be found on the Agency's Web site.
    (a) Unless requested to be shorter by the applicant, broadband 
loans must be repaid with interest within a period that, rounded to the 
nearest whole year, is equal to the expected composite economic life of 
the assets to be financed, as determined by the Agency based upon 
acceptable depreciation rates. Expected composite economic life means 
the depreciated life plus three years.
    (b) Loan advances are made at the request of the borrower. 
Principal payments for each advance are amortized over the remaining 
term of the loan and are due monthly. Principal payments will be 
deferred until two years after the date of the first advance of loan 
funds. Interest begins accruing when the advance is made and interest 
payments are due monthly, with no deferral period.
    (c) Borrowers are required to carry fidelity bond coverage. 
Generally this amount will be 15 percent of the loan amount, not to 
exceed $5 million. The Agency may reduce the percentage required if it 
determines that the amount is not commensurate with the risk involved.


Sec.  1738.154  Loan security.

    (a) The broadband loan must be secured by the assets purchased with 
the loan funds, as well as all other assets of the applicant and any 
other signer of the loan documents except as provided in Sec.  
1738.155.
    (b) The Agency must be given an exclusive first lien, in form and 
substance satisfactory to the Agency, on all of the applicant's 
property and revenues and such additional security as the Agency may 
require. The Agency may share its first lien position with another 
lender on a pari passu, prorated basis if security arrangements are 
acceptable to the Agency.
    (c) Unless otherwise designated by the Agency, all property 
purchased with loan funds must be owned by the applicant.
    (d) In the case of loans that include financing of facilities that 
do not constitute self-contained operating systems, the applicant shall 
furnish assurance, satisfactory to the Agency, that continuous and 
efficient service at the broadband lending speed will be rendered.
    (e) The Agency will require adequate financial, investment, 
operational, reporting, and managerial controls in the loan documents.


Sec.  1738.155  Special terms and conditions.

    (a) When necessary to achieve financial feasibility and long-term 
sustainability of a project proposing to serve an area(s) that includes 
at least 50 percent unserved households, the Agency may consider 
applications in

[[Page 45407]]

which the applicant has requested any of the following:
    (1) A principal deferral period longer than the 2 year principal 
deferral period established in accordance with Sec.  1738.153(b), but 
in no event longer than 4 years nor more than 40 percent of the 
maturity period of the loan as set forth in Sec.  1738.153(a);
    (2) An extension of the loan term by 25 percent of the maturity 
period established in accordance with Sec.  1738.153(a), but in no 
event longer than 35 years; and
    (3) A modification to the security requirements, as long as the 
modifications are necessary to sustain the operation and do not 
prejudice the government's security for the loan. The modification must 
ensure that the proposed security arrangements are commensurate with 
the risk of the project.
    (b) [Reserved]


Sec.  1738.156  Other Federal requirements.

    (a) To receive a broadband loan, the applicant must certify or 
agree in writing to comply with all applicable Federal regulations 
including, but not limited to:
    (1) The nondiscrimination and equal employment opportunity 
requirements of Title VI of the Civil Rights Act of 1964, as amended (7 
CFR part 15);
    (2) Section 504 of the Rehabilitation Act of 1973, as amended (29 
U.S.C. 794 et seq.; 7 CFR part 15b);
    (3) The Age Discrimination Act of 1975, as amended (42 U.S.C. 6101 
et seq.; 45 CFR part 90);
    (4) Executive Order 11375, amending Executive Order (E.O.) 11246, 
Relating to Equal Employment Opportunity (3 CFR, 1966-1970). See 7 CFR 
parts 15 and 15b and 45 CFR part 90, RUS Bulletin 1790-1 
(``Nondiscrimination Among Beneficiaries of RUS Programs''), and RUS 
Bulletin 20-15:320-15 (``Equal Employment Opportunity in Construction 
Financed with RUS Loans''), found on the agency's Web site;
    (5) The Architectural Barriers Act of 1968, as amended (42 U.S.C. 
4151 et seq.);
    (6) The Uniform Federal Accessibility Standards (UFAS) (Appendix A 
to 41 CFR subpart 101-19.6);
    (7) The requirements of the National Environmental Policy Act of 
1969 (NEPA), as amended;
    (8) The Council on Environmental Quality Regulations for 
Implementing the Procedural Provisions of NEPA and certain related 
Federal environmental laws, statutes, regulations, and Executive Orders 
found in 7 CFR part 1794, and any successor regulation;
    (9) The Uniform Relocation Assistance and Real Property Acquisition 
Policies Act of 1970, as amended, 42 U.S.C. 4601 et seq., and with 
implementing Federal regulations in 49 CFR part 24 and 7 CFR part 21;
    (10) The regulations implementing E.O. 12549, Debarment and 
Suspension, 2 CFR parts 180 and 417;
    (11) The requirements regarding Lobbying for Contracts, Grants, 
Loans, and Cooperative Agreements in 31 U.S.C. 1352;
    (12) Certification regarding Flood Hazard Area Precautions;
    (13) Certification regarding Debarment, Suspension, and Other 
Responsibility Matters--Primary Covered Transactions; and
    (14) Certification that the borrower is not delinquent on any 
Federal debt and has been informed of the collection options the 
Federal Government may use to collect delinquent debt.
    (b) Applicants must agree in writing to comply with all Federal, 
State and local laws, rules, regulations, ordinances, codes, and orders 
applicable to the project.


Sec. Sec.  1738.157--1739.200  [Reserved]

Subpart E--Application Review and Underwriting


Sec.  1738.201  Application submission.

    (a) Loan applications must be submitted directly to the Agency's 
National Office. All applications must contain two hard copies and an 
electronic copy of the entire application. An application is considered 
received upon receipt of the hard and electronic copies by the National 
Office.
    (b) The Agency is developing an online application system. Once the 
system becomes available, all applicants will be required to submit 
applications through the online system.
    (c) The Agency may publish additional application submission 
requirements in the Federal Register.


Sec.  1738.202  Elements of a complete application.

    Applications must be submitted in the format required by the Rural 
Broadband Access Loan and Loan Guarantee Program Application Guide (the 
Application Guide), available on the agency's Web site, so that 
applications can be uniformly evaluated and compared. To be considered 
complete, an application must contain at least the following items, in 
form and substance acceptable to the Agency:
    (a) A completed RUS Form 532, including any additional items 
required by the form;
    (b) Information required for the public notice to determine service 
area eligibility (see Sec.  1738.204);
    (c) Documentation demonstrating how the applicant will meet the 
equity requirement of Sec.  1738.207;
    (d) A market survey, unless not required by Sec.  1738.209(b);
    (e) A competitive analysis of the entire proposed service 
territory(ies) (see Sec.  1738.210);
    (f) The historical and projected financial information required in 
Sec.  1738.211;
    (g) A network design, which also demonstrates the ability to 
provide service at the broadband lending speed (see Sec.  1738.212);
    (h) A legal opinion that addresses the applicant's ability to enter 
into a loan as requested in the loan application, to pledge security as 
required by the Agency, to describe all pending litigation matters, and 
such other requirements as are detailed in the Application Guide;
    (i) Documentation proving that all required licenses and regulatory 
approvals for the proposed operation have been obtained, or the status 
of obtaining such licenses or approvals; and
    (j) Additional items that may be required by the Administrator 
through a notice in the Federal Register.


Sec.  1738.203  Priority for approving loan applications.

    (a) The Agency will compare and evaluate all applications that have 
been submitted for funding and deemed to be complete no less than twice 
a year, and shall give priority to applications in the following order 
(Note that for applications containing multiple proposed funded service 
areas, the percentage will be calculated combining all proposed funded 
service areas.):
    (1) Applications in which no broadband service, as defined herein 
is available in the proposed funded service area;
    (2) Applications in which at least 75 percent of households in the 
proposed funded service area have no broadband service;
    (3) Applications in which at least 50 percent of households in the 
proposed funded service area have no broadband service;
    (4) Applications in which at least 25 percent of households in the 
proposed funded service area have no broadband service; and
    (5) Applications in which at least 25 percent of the customers in 
the proposed service area are commercial interests and predominately 
more households are proposed to be served than businesses.

[[Page 45408]]

    (b) Once applications have been determined to be complete, they 
will be compared and prioritized according to the criteria listed in 
paragraph (a) above, and subject to available funding levels.
    (c) If two or more applications are tied for a place in the 
processing queue, the application that promotes broadband adoption will 
be given priority over applications that do not promote broadband 
adoption.
    (d) The Agency shall establish the National and State reserve 
levels in accordance with Title VI of the RE Act when feasible given 
the level of funds available for the program. In instances when funds 
in a particular area are insufficient to cover a loan request, priority 
will be given to applications for which funding is available.


Sec.  1738.204  Public notice.

    (a) The Agency will publish a public notice of each application. 
The application must provide a summary of the information required for 
such public notice including all of the following information:
    (1) The identity of the applicant;
    (2) A map of each service area showing the rural area boundaries 
and the unserved areas using the Agency's Mapping Tool;
    (3) The amount and type of support requested;
    (4) The status of the review of the application;
    (5) The estimated number of unserved households in each service 
area exclusive of satellite broadband service;
    (6) A description of all the types of services that the applicant 
proposes to offer in each service area; and
    (7) A list of the census block groups proposed to be served.
    (b) The Agency will publish the public notice on an Agency Web page 
after the application has been received in the Agency's National Office 
and will remain on the Web page for a period of 30 calendar days. The 
notice will ask existing service providers to submit to the Agency, 
within this notice period, the following information:
    (1) The number of residential and business customers within the 
applicant's service area that are currently offered broadband service 
by the existing service provider;
    (2) The number of residential and business customers within the 
applicant's service area currently purchasing the existing service 
provider's broadband service, the rates of data transmission being 
offered, and the cost of each level of broadband service charged by the 
existing service provider;
    (3) The number of residential and business customers within the 
applicant's service area receiving the existing service provider's non-
broadband services and the associated rates for these other services;
    (4) A map showing where the existing service provider's services 
coincide with the applicant's service area using the Agency's Mapping 
Tool; and
    (5) Whether the existing service provider is an existing RUS 
borrower or grantee.
    (c) The Agency will use the information submitted to determine if 
the existing service provider will be classified as an incumbent 
service provider. Notwithstanding non-responses by existing providers, 
the Agency will use all information available to it in evaluating the 
feasibility of the loan.
    (d) The Agency will determine whether the service areas included in 
the application are eligible for funding based on all available 
information. If part or parts of the applicant's proposed funded 
service area are ineligible, the Agency will contact the applicant and 
require that those ineligible areas be removed from the proposed funded 
service area or that other funding be provided. If the ineligible 
service areas are not removed from the funding request or additional 
funds are not provided, the Agency will reject the application. Given 
that applications may need to be revised to reflect modified service 
areas, applicants are encouraged to re-submit their applications as 
soon as possible to avoid that their applications will not be 
considered for the current evaluation period.
    (e) The information submitted by an existing service provider will 
be treated as proprietary and confidential to the extent permitted 
under applicable law.
    (f) If an application is approved, an additional notice will be 
published on the agency's Web site that will include the following 
information:
    (1) The name of the entity receiving the financial assistance;
    (2) The type of assistance being received; and
    (3) The purpose of the assistance;
    (g) The semiannual reports submitted under Sec.  1738.254(e).


Sec.  1738.205  Notification of completeness.

    If all proposed funded service areas are eligible, the Agency will 
review the application for completeness. The completeness review will 
include an assessment of whether all required documents and information 
have been submitted and whether the information provided is of adequate 
quality to allow further analysis.
    (a) If the application contains all documents and information 
required by this part and is sufficient, in form and substance 
acceptable to the Agency, the Agency will notify the applicant, in 
writing, that the application is complete. A notification of 
completeness is not a commitment that the loan will be approved. By 
submitting an application, the applicant acknowledges that no 
obligation to enter into a loan exists until actual loan documents have 
been executed.
    (b) If the application is considered to be incomplete or 
inadequate, the Agency will notify the applicant, in writing, that the 
application has been rejected. The rejection letter will include an 
explanation of the reasons for rejection.


Sec.  1738.206  Evaluation for feasibility.

    After an applicant is notified that the application is complete, 
the Agency will evaluate the application's financial and technical 
feasibility. Only applications that, as determined by the Agency, are 
technically and financially feasible will be considered for funding.
    (a) The Agency will determine financial feasibility by evaluating 
the impact of the facilities financed with the proceeds of the loan and 
the associated debt, the applicant's equity, market survey (if 
required), competitive analysis, financial information, and other 
relevant information in the application.
    (b) The Agency will determine technical feasibility by evaluating 
the applicant's network design and other relevant information in the 
application.


Sec.  1738.207  Equity requirement.

    (a) To be eligible for a loan, an applicant must demonstrate a 
minimum equity contribution equal to 10 percent of the requested loan 
amount at the time of application which must remain available at loan 
closing. In addition to the 10 percent minimum equity requirement, 
Sec.  1738.208 provides additional cash requirements that may be 
required in support of the loan.
    (b) If the applicant does not have the required equity at the time 
the application is submitted, the applicant may satisfy the equity 
requirement at the time of application with an investor's unconditional 
legal commitment to cover the shortfall by providing additional equity. 
The additional equity must be transferred to the applicant prior to 
loan closing. If this option is elected, the applicant must provide 
evidence in the application that clearly identifies the investor's 
commitment to the applicant; the amount, terms, and conditions of the

[[Page 45409]]

investment; and the investor's bank or financial statements that 
demonstrate its ability to fulfill its commitment. The terms and 
conditions of the investment must be acceptable to the Agency, but at a 
minimum cannot be secured by any assets of the applicant nor provide 
that the investment will be available when certain requirements or 
other thresholds are met by the applicant. The Agency will reject 
applications that do not provide evidence acceptable to the Agency 
regarding the investor's commitment.
    (c) For State and local government applicants, the equity 
requirement can be satisfied with a general obligation bond, as long as 
the additional equity will be available to the applicant at closing. If 
the equity requirement is satisfied with a general obligation bond, the 
broadband loan cannot be subordinate to the bond. The applicant must 
submit an opinion from its legal counsel that the applicant has the 
authority to issue a general obligation bond in an amount sufficient to 
meet the minimum equity requirement. Revenue bonds supported by the 
operations to be funded cannot be used to satisfy the equity 
requirement.


Sec.  1738.208  Additional cash requirements.

    (a) If the Agency's financial analysis indicates that the 
applicant's entire operation (existing operations and new operations 
combined) will show an inadequate cash balance at the end of any year 
during the five-year forecast period, the Agency will require the 
applicant to obtain additional cash infusions necessary to maintain an 
appropriate cash balance throughout the five-year forecast period. This 
cash infusion would be in conjunction with the required 10 percent 
minimum equity position.
    (1) The Agency will require the applicant and its investors to:
    (i) Infuse additional cash to cover projected deficits for the 
first two years of operations at loan closing; and
    (ii) Enter into legal arrangements that commit them to making 
additional cash infusions to ensure that the operation will sustain a 
positive cash position on a quarterly basis throughout the five-year 
forecast period.
    (2) For purposes of identifying the additional cash requirement for 
a start-up operation or an operation that has not demonstrated positive 
cash flow for the two years prior to the submission date of the 
application, 50 percent of projected revenues for each year of the 
five-year forecast period will be considered to determine if an 
operation can sustain a positive cash position. In addition to the 
initial financial projections required to demonstrate financial 
feasibility, such applicants must complete adjusted financial 
projections using the reduced revenue projections in order to identify 
the amount of additional cash that will be required. Projections must 
be fully supported with assumptions acceptable to the Agency. The 
applicant may present evidence in its loan application that projected 
revenues or a portion of projected revenues are based on binding 
commitments and request that more than 50 percent of the projected 
revenues be considered for the purpose of identifying the additional 
cash requirement.
    (3) For purposes of satisfying the additional cash requirements for 
an existing operation that has demonstrated a positive cash flow for 
the two fiscal years prior to the submission date of the application, 
100 percent of the projected revenues for each year of the five-year 
forecast period will be used to determine if an operation can sustain a 
positive cash position, as long as these projections are fully 
supported with assumptions acceptable to the Agency.
    (4) If debt is incurred to satisfy the additional cash requirement, 
this debt must take a subordinate lien position to the Agency debt and 
must be at terms acceptable to the Agency.
    (b) An applicant may satisfy the additional cash requirement with 
an unconditional, irrevocable letter of credit (LOC) satisfactory to 
the Agency. The LOC must be issued from a financial institution 
acceptable to the Agency and must remain in effect throughout the 
forecast period. The applicant and the Agency must both be payees under 
the LOC. The LOC must have payment conditions acceptable to the Agency, 
and it must be in place prior to loan closing. The applicant cannot 
secure the LOC with its assets and cannot pay for any LOC charges or 
fees with its funds.
    (c) If the Agency offers a loan to the applicant, the applicant 
must ensure that the additional cash infusion required in the first two 
years is deposited into its bank account within 120 days from the date 
the applicant signs the loan offer letter (see Sec.  1738.251) and must 
enter into any other legal arrangements necessary to cover further 
projected operating deficits (or in the case of the LOC, to provide an 
acceptable LOC to the Agency) prior to closing. If these requirements 
are not completed within this timeframe, the loan offer will be 
terminated, unless the applicant requests and the Agency approves an 
extension based on extenuating circumstances that the Agency was not 
aware of at the time the offer was made.


Sec.  1738.209  Market survey.

    (a) Except as provided in paragraph (b) of this section, the 
applicant must complete a separate market survey for each service area 
where the applicant proposes to provide service at the broadband 
lending speed. Each market survey must demonstrate the need for the 
service at the broadband lending speed, support the projected 
penetration rates and price points for the services to be offered, and 
support the feasibility analysis. The market survey must also address 
all other services that will be provided in connection with the 
broadband loan. Additional information on the requirements of the 
market survey can be found in the Application Guide.
    (b) The applicant is not required to complete a market survey for 
any service offering for which the applicant is projecting less than a 
20 percent penetration rate in each service area by the end of the 
five-year forecast period. For example, if the applicant is projecting 
a penetration rate of 30 percent for data services and 15 percent for 
video services, a market survey must be completed for the data 
services. The proposed prices for those services with a projected 
penetration rate less than 20 percent must be affordable, as determined 
by the Agency.
    (c) For a market survey to be acceptable to the Agency, it must 
have been completed within six months of the application submission 
date. The Agency may reject any application in which the financial 
projections are not supported by the market survey. If the demographics 
of the proposed service area have significantly changed since the 
survey was completed, the Agency may require an updated market survey.


Sec.  1738.210  Competitive analysis.

    The applicant must submit a competitive market analysis for each 
service area regardless of projected penetration rates. Each analysis 
must identify all existing service providers and all resellers in each 
service area regardless of the provider's market share, for each type 
of service the applicant proposes to provide. This analysis must 
include each competitor's rate packages for all services offered, the 
area that is being covered, and to the extent possible, the quality of 
service being provided.


Sec.  1738.211  Financial information.

    (a) The applicant must submit financial information acceptable to 
the Agency that demonstrates that the

[[Page 45410]]

applicant has the financial capacity to fulfill the loan requirements 
and to successfully complete the proposed project.
    (1) If the applicant is an existing company, it must provide 
complete copies of audited financial statements (opinion letter, 
balance sheet, income statement, statement of changes in financial 
position, and notes to the financial statement) for the three fiscal 
years preceding the application submission. If audited statements are 
not available, the applicant must submit unaudited financial statements 
and tax returns for those fiscal years. Applications from start-up 
entities must, at a minimum, provide an opening balance sheet dated 
within 30 days of the final submission of all application material.
    (2) If the applicant is a subsidiary operation, it must also 
provide complete copies of audited financial statements for the parent 
operation for the fiscal year preceding the application submission. If 
audited statements are not available, unaudited financial statements 
and tax returns for the previous year must be submitted.
    (3) If the applicant relies on services provided by an affiliated 
operation, it must also provide complete copies of audited financial 
statements for any affiliate for the fiscal year preceding the 
application submission. If audited statements are not available, 
unaudited statements and tax returns for the previous year must be 
submitted.
    (4) Applicants must provide a list of all its outstanding 
obligations. Copies of existing notes and loan and security agreements 
must be included in the application.
    (5) Applicants must provide a detailed description of working 
capital requirements and the source of these funds.
    (b) Applicants must submit the following documents that demonstrate 
the proposed project's financial viability and ability to repay the 
requested loan.
    (1) Customer projections for the five-year forecast period that 
substantiate the projected revenues for each service that is to be 
provided. The projections must be provided on at least an annual basis 
and must be developed separately for each service area. These 
projections must be clearly supported by the information contained in 
the market survey, unless no market survey is required (see Sec.  
1738.209(b)).
    (2) Annual financial projections in the form of balance sheets, 
income statements, and cash flow statements for the five-year forecast 
period. Prior to the submission of an application, an applicant may 
request that alternative information related to financial viability be 
considered when the applicant can for good cause demonstrate why a full 
five year forecast cannot be provided. If this request is approved by 
the Agency, then the applicant can submit the application using the 
alternative information that was approved.
    (i) These projections must use a system of accounts acceptable to 
the Agency and be supported by a detailed narrative that fully explains 
the methodology and assumptions used to develop the projections.
    (ii) The financial projections submitted by the applicant must 
demonstrate that their entire operation will be able to meet a minimum 
TIER requirement equal to 1.25 by the end of the five-year forecast 
period. Demonstrating that the operation can achieve a projected TIER 
of 1.25 does not ensure that the Agency will approve the loan.
    (iii) If the financial analysis suggests that the operation will 
not be able to achieve the required TIER ratio, the Agency will not 
approve the loan without additional capital, additional cash, 
additional security, and/or a change in the loan terms.
    (c) Based on the financial evaluation, the loan documents will 
specify TIER requirements that must be met throughout the amortization 
period.


Sec.  1738.212  Network design.

    (a) Applications must include a network design that demonstrates 
the project's technical feasibility. The network design must fully 
support the delivery of service at the broadband lending speed, 
together with any other services to be provided. In measuring speed, 
the Agency will take into account industry and regulatory standards. 
The design must demonstrate that the project will be complete within 
three years from the day the Agency notifies the applicant that loan 
funds are available and must include the following items:
    (1) A detailed description of the proposed technology that will be 
used to provide service at the broadband lending speed. This 
description must clearly demonstrate that all households in the 
proposed funded service area will be offered service at the broadband 
lending speed;
    (2) A detailed description of the existing network. This 
description should provide a synopsis of the current network 
infrastructure;
    (3) A detailed description of the proposed network. This 
description should provide a synopsis of the proposed network 
infrastructure;
    (4) A description of the approach and methodology for monitoring 
ongoing service delivery and service quality for the services being 
deployed;
    (5) Estimated project costs detailing all facilities that are 
required to complete the project. These estimated costs must be broken 
down to indicate costs associated with each proposed service area and 
must specify how Agency and non-Agency funds will be used to complete 
the project;
    (6) A construction build-out schedule of the proposed facilities by 
service area on a quarterly basis. The build-out schedule must include:
    (i) A description of the work force that will be required to 
complete the proposed construction;
    (ii) A timeline demonstrating project completion within three years 
and four months from the date of the loan contract;
    (iii) Detailed information showing that all households within the 
proposed funded service area will be offered service at the broadband 
lending speed when the system is complete; and
    (iv) Detailed information showing that construction of the proposed 
facilities will start within six months from the date the Agency 
notifies the borrower that loan funds are available.
    (7) A depreciation schedule for all facilities financed with loan 
and non-loan funds;
    (8) An environmental report prepared in accordance with 7 CFR part 
1794 or successor environmental policies and procedures; and
    (9) Any other system requirements required by the Administrator 
through a notice published in the Federal Register.
    (b) The network design must be prepared by a registered 
Professional Engineer with telecommunications experience or by 
qualified personnel on the applicant's staff. If the network design is 
prepared by the applicant's staff, the application must clearly 
demonstrate the staff's qualifications, experience, and ability to 
complete the network design. To be considered qualified, staff must 
have at least three years of experience in designing the type of 
broadband system proposed in the application.


Sec.  1738.213  Loan determination.

    (a) If the application meets all statutory and regulatory 
requirements and the feasibility study demonstrates that the TIER 
requirement can be satisfied and the business plan is sustainable, the 
application will be submitted to the Agency's credit committees for 
consideration according to the priorities in Sec.  1738.203. Such

[[Page 45411]]

submission of an application to the Agency's credit committees does not 
guarantee that a loan will be approved. In making a loan determination, 
the Administrator shall consider the recommendations of the credit 
committees.
    (b) The applicant will be notified of the Agency's decision in 
writing. If the Agency does not approve the loan, a rejection letter 
will be sent to the applicant, and the application will be returned 
with an explanation of the reasons for the rejection.


Sec. Sec.  1738.214-1738.250  [Reserved]

Subpart F--Closing, Servicing, and Reporting


Sec.  1738.251  Loan offer and loan closing.

    The Agency will notify the applicant of the loan offer, in writing, 
and the date by which the applicant must accept the offer. If the 
applicant accepts the terms of the loan offer, a loan contract executed 
by the Agency will be sent to the applicant. The applicant must execute 
the loan contract and satisfy all conditions precedent to loan closing 
within the timeframe specified by the Agency. If the conditions are not 
met within this timeframe, the loan offer will be terminated, unless 
the applicant requests, and the Agency approves, an extension. The 
Agency may approve such a request if the applicant has diligently 
sought to meet the conditions required for loan closing and has been 
unable to do so for reasons outside its control.


Sec.  1738.252  Construction.

    (a) Construction paid for with broadband loan funds must comply 
with 7 CFR part 1788, 7 CFR part 1794, RUS Bulletin 1738-2, and any 
successor regulations found on the agency's Web site, and any other 
guidance from the Agency.
    (b) Once the Agency has extended a loan offer, the applicant, at 
its own risk, may start construction that is included in the loan 
application on an interim financing basis. For this construction to be 
eligible for reimbursement with loan funds, all construction procedures 
contained in this part must be followed. Note, however, that the 
Agency's extension of a loan offer is not a guarantee that a loan will 
be made, unless and until a loan contract has been entered into between 
the applicant and RUS.
    (c) The build-out must be complete within three years and 4 months 
from the date of the loan contract. Build-out is considered complete 
when the network design has been fully implemented, the service 
operations and management systems infrastructure is operational, and 
the borrower is ready to support the activation and commissioning of 
individual customers to the new system.


Sec.  1738.253  Servicing.

    (a) Borrowers must make payments on the broadband loan as required 
in the note.
    (b) Borrowers must comply with all terms, conditions, affirmative 
covenants, and negative covenants contained in the loan documents.
    (c) In the event of default of any required payment or other term 
or condition:
    (1) A late charge shall be charged on any payment not made in 
accordance with the terms of the note.
    (2) The Agency may exercise the default remedies provided in the 
loan documents and any remedy permitted by law, but is not required to 
do so.
    (3) If the Agency chooses to not exercise its default remedies, it 
does not waive its right to do so in the future.


Sec.  1738.254  Accounting, reporting, and monitoring requirements.

    (a) Borrowers must adopt a system of accounts for maintaining 
financial records acceptable to the Agency, as described in 7 CFR part 
1770, subpart B.
    (b) Borrowers must submit annual audited financial statements along 
with a report on compliance and on internal control over financial 
reporting, and management letter in accordance with the requirements of 
7 CFR part 1773. The Certified Public Accountant (CPA) conducting the 
annual audit is selected by the borrower and must be approved by RUS as 
set forth in 7 CFR 1773.4.
    (c) Borrowers must comply with all reasonable Agency requests to 
support ongoing monitoring efforts. The Borrower shall afford RUS, 
through its representatives, reasonable opportunity, at all times 
during business hours and upon prior notice, to have access to and the 
right to inspect the Broadband System, and any other property 
encumbered by the Mortgage, and any or all books, records, accounts, 
invoices, contracts, leases, payrolls, timesheets, cancelled checks, 
statements, and other documents, electronic or paper of every kind 
belonging to or in the possession of the Borrower or in any way 
pertaining to its property or business, including its subsidiaries, if 
any, and to make copies or extracts therefore.
    (d) Borrower records shall be retained and preserved in accordance 
with the provisions of 7 CFR part 1770, subpart A.
    (e) Borrowers must submit semiannual reports for 3 years after 
completion of the project. The reports must include the following 
information:
    (1) The purpose of the financing, including new equipment and 
capacity enhancements that support high-speed broadband access for 
educational institutions, health care providers, and public safety 
service providers (including the estimated number of end users who are 
currently using or forecasted to use the new or upgraded 
infrastructure);
    (2) The progress towards fulfilling the objectives for which the 
assistance was granted, including:
    (i) The number and location of residences and businesses that will 
receive service at or greater than the broadband lending speed;
    (ii) The types of facilities constructed and installed;
    (iii) The speed of the broadband services being delivered;
    (iv) The average price of the broadband services being delivered in 
each proposed service area;
    (v) The broadband adoption rate for each proposed service 
territory, including the number of new subscribers generated from the 
facilities funded; and
    (3) Any other reporting requirements established by the 
Administrator by notice in the Federal Register.


Sec.  1738.255  Default and de-obligation.

    If a default under the loan documents occurs and such default has 
not been cured within the timeframes established in the loan documents, 
the Applicant acknowledges that the Agency may, depending on the 
seriousness of the default, take any of the following actions:
    (a) To the greatest extent possible recover the maximum amount of 
loan funds.
    (b) De-obligate all funds that have not been advanced; and
    (c) Reallocate recovered funds to the extent possible as prescribed 
by the Office of Management and Budget.


Sec. Sec.  1738.256-1738.300  [Reserved]

Subpart G--Loan Guarantee


Sec.  1738.301  General.

    (a) Applicants wishing to obtain a loan guarantee for private 
financing are subject to the same requirements as direct loan borrowers 
with respect to:
    (1) Loan purposes as described in subpart B of this part;
    (2) Eligible borrowers and eligible areas as described in subpart C 
of this part;
    (3) The loan terms described in subpart D of this part, with the 
exception of the interest rates described in Sec.  1738.152;

[[Page 45412]]

    (4) The application review and underwriting requirements in subpart 
E of this part; and
    (5) The accounting, reporting, and monitoring requirements of 
subpart F of this part.
    (b) The Agency will publish a notice in the Federal Register 
indicating any additional requirements, as well as the amount of funds 
available, if any, for loan guarantees.


Sec.  1738.302  Eligible guaranteed lenders.

    To be eligible for a loan guarantee, a guaranteed lender must be:
    (a) A financial institution in good standing that has been a 
concurrent lender with RUS; or
    (b) A legally organized lending institution, such as commercial 
bank, trust company, mortgage banking firm, insurance company, or any 
other institutional investor authorized by law to loan money, which 
must be subject to credit examination and supervision by a Federal or 
State agency, unless the Agency determines that alternative examination 
and supervisory mechanisms are adequate.


Sec.  1738.303  Requirements for the loan guarantee.

    At the time of application, applicants must provide in form and 
substance acceptable to the Agency:
    (a) Evidence of the guaranteed lender's eligibility under Sec.  
1738.302;
    (b) Evidence that the guaranteed lender has the demonstrated 
capacity to adequately service the guaranteed loan;
    (c) Evidence that the guaranteed lender is in good standing with 
its licensing authority and meets the loan making, loan servicing, and 
other requirements of the jurisdiction in which the lender makes loans;
    (d) Evidence satisfactory to the Agency of its qualification under 
this part, along with the name of the authority that supervises it;
    (e) A commitment letter from the guaranteed lender that will be 
providing the funding, and the terms of such funding, all of which may 
be conditioned on final approval of the broadband loan guarantee by the 
Agency; and
    (f) A description of any and all charges and fees for the loan, 
along with documentation that they are comparable to those normally 
charged other applicants for the same type of loan in the ordinary 
course of business. Such charges and fees will not be included within 
the Agency's loan guarantee.


Sec.  1738.304  Terms for guarantee.

    Loan guarantees will only be given on the conditions that:
    (a) The loan guarantee is no more than 80 percent of the principal 
amount, which shall exclude any and all charges and fees;
    (b) The guarantee is limited to the outstanding loan repayment 
obligation of the borrower and does not extend to guaranteeing that the 
guaranteed lender will remit to a holder, loan payments made by the 
borrower;
    (c) The interest rate must be fixed and must be the same or lesser 
for the guaranteed loan amount or the respective guaranteed loan 
portion amount or the respective guaranteed amount equivalent, as the 
case may be, and unguaranteed loan amount or the respective 
unguaranteed loan portion amount or the respective unguaranteed-amount 
equivalent, as the case may be;
    (d) The entire loan will be secured by the same security with equal 
lien priority for the guaranteed loan amount or the respective 
guaranteed loan portion amount or the respective guaranteed-amount 
equivalent, as the case may be, and unguaranteed loan amount or the 
respective unguaranteed loan portion amount or the respective 
unguaranteed-amount equivalent, as the case may be;
    (e) The unguaranteed loan amount or the respective unguaranteed 
loan portion amount or the respective unguaranteed-amount equivalent, 
as the case may be, will neither be paid first nor given any preference 
or priority over the guaranteed loan amount or the respective 
guaranteed loan portion amount or the respective guaranteed-amount 
equivalent, as the case may be;
    (f) Prior written approval is obtained from the Agency for any 
assignment by the guaranteed lender. Any assignment shall entitle the 
holder to all of the guaranteed lender's rights but shall maintain the 
guaranteed lender responsible for servicing the entire loan;
    (g) The borrower, its principal officers, members of the borrower's 
board of directors and members of the immediate families of said 
officials shall not be a holder of the guaranteed lender's loan;
    (h) The Agency will not guarantee any loan under this subpart that 
provides for a balloon payment of principal or interest at the final 
maturity date of the loan or for the payment of interest on interest;
    (i) All loan guarantee documents between the Agency and the 
guaranteed lender are prepared by the Agency; and
    (j) The loan agreement between the borrower and the lender shall be 
subject to Agency approval.


Sec.  1738.305  Obligations of guaranteed lender.

    Once a loan guarantee has been approved, the guaranteed lender will 
be responsible for:
    (a) Servicing the loan;
    (b) Determining that all prerequisites to each advance of loan 
funds by the lender under the terms of the contract of guarantee, all 
financing documents, and all related security documents have been 
fulfilled;
    (c) Obtaining approval from the Agency to advance funds prior to 
each advance;
    (d) Billing and collecting loan payments from the borrower;
    (e) Notifying the Administrator promptly of any default in the 
payment of principal and interest on the loan and submit a report no 
later than 30 days thereafter, setting forth the reasons for the 
default, how long it expects the borrower will be in default, and what 
corrective actions the borrower states that it is taking to achieve a 
current debt service position; and
    (f) Notifying the Administrator of any known violations or defaults 
by the borrower under the lending agreement, contract of guarantee, or 
related security instruments or conditions of which the lender is aware 
which might lead to nonpayment, violation, or other default.


Sec.  1738.306  Agency rights and remedies.

    (a) The guarantee must provide that upon notice to the lender, the 
Agency may assume loan servicing responsibilities for the loan or the 
guaranteed loan amount or the respective guaranteed loan portion amount 
or the respective guaranteed-amount equivalent, as the case may be, or 
require the lender to assign such responsibilities to a different 
entity, if the lender fails to perform its loan servicing 
responsibilities under the loan guarantee agreement, or if the lender 
becomes insolvent, makes an admission in writing of its inability to 
pay its debts generally as they become due, or becomes the subject of 
proceedings commenced under the Bankruptcy Reform Act of 1978, as 
amended (11 U.S.C. 101 et seq.) or any similar applicable Federal or 
State law, or is no longer in good standing with its licensing 
authority, or ceases to meet the eligibility requirements of this 
subpart. Such negligent servicing is defined as the failure to perform 
those services which a reasonable prudent lender would perform in 
servicing its own portfolio of loans that are not guaranteed and 
includes not only a failure to act but also not acting in a timely 
manner.

[[Page 45413]]

    (b) The guarantee shall cease to be effective with respect to any 
guaranteed loan amount or any guaranteed loan portion amount or any 
guaranteed-amount equivalent to the extent that:
    (1) The guaranteed loan amount or the respective guaranteed loan 
portion amount or the respective guaranteed amount equivalent, as the 
case may be, is separated at any time from the unguaranteed loan amount 
or the respective unguaranteed loan portion amount or the respective 
unguaranteed-amount equivalent, as the case may be, in any way.; or
    (2) Any holder of the guaranteed loan note or any guaranteed loan 
portion note, as the case may be, having a claim to payments on the 
guaranteed loan receives more than its pro-rata percentage of any 
payment due to such holder from payments made under the guarantee at 
any time during the term of the guaranteed loan.


Sec.  1738.307  Additional policies.

    The Agency shall provide additional loan guarantee policies, 
consistent with OMB Circular A-129, in order to achieve its mission of 
promoting broadband in rural areas, which shall be published, as 
needed, in the Federal Register.


Sec.  1738.308  Full faith and credit of the United States.

    Loan guarantees made under this part are supported by the full 
faith and credit of the United States and are incontestable except for 
fraud or misrepresentation of which the holder had actual knowledge at 
the time it became a holder.


Sec. Sec.  1738.309-1738.349   [Reserved]


Sec.  1738.350  OMB control number.

    The information collection requirements in this part are approved 
by the Office of Management and Budget (OMB) and assigned OMB control 
number 0572-0130.

    Dated: July 8, 2015.
Brandon McBride,
Administrator, Rural Utilities Service.
[FR Doc. 2015-18624 Filed 7-29-15; 8:45 am]
 BILLING CODE P