PART 1744—POST-LOAN POLICIES AND PROCEDURES COMMON TO GUARANTEED AND INSURED TELEPHONE LOANS Authority: 7 U.S.C. 901 et seq., et seq., et seq. Source: 55 FR 39396, Sept. 27, 1990, unless otherwise noted. Subpart A [Reserved] Subpart B—Lien Accommodations and Subordination Policy Source: 51 FR 32430, Sept. 12, 1986, unless otherwise noted. Redesignated at 55 FR 39396, Sept. 27, 1990. § 1744.20 General. (a) Recent changes in the telecommunications industry, including deregulation and technological developments, have caused Rural Utilities Service (RUS) borrowers and other organizations providing telecommunications services to consider undertaking projects that provide new telecommunications services and other telecommunications services not ordinarily financed by RUS. Although some of these services may not be eligible for financing under the Rural Electrification Act of 1936 (RE Act), these services may nevertheless advance RE Act objectives where the borrower obtains financing from private lenders. The borrower's financial strength and the assurance of repayment of outstanding Government debt may be improved as a result of providing such telecommunications services. (b) To facilitate the financing of new services and other services not ordinarily financed by RUS, RUS is willing to consider accommodating the Government's lien on telecommunications borrowers' systems or accommodating or subordinating the Government's lien on after-acquired property of telecommunications borrowers. To expedite this process, requests for lien accommodations meeting the requirements of § 1744.30 will receive automatic approval from RUS. (c) This subpart establishes RUS policy with respect to all requests for lien accommodations and subordinations for loans from private lenders. For borrowers that do not qualify for automatic lien accommodations in accordance with § 1744.30, RUS will consider lien accommodations for RE Act purposes under § 1744.40 and non-Act purposes under § 1744.50. [66 FR 41758, Aug. 9, 2001] § 1744.21 Definitions. The following definitions apply to this subpart: Administrator Advance After-acquired property Amortization expense Account names Number (1) Amortization expense 6560.2 (2) Amortization expense—tangible 6563 (3) Amortization expense—intangible 6564 (4) Amortization expense—other 6565 Note: All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B). Asset Automatic lien accommodation Borrower Construction Fund Debt Service Coverage (DSC) ratio Default Depreciation expense Account names Number (1) Depreciation expense 6560.1 (2) Depreciation expense—telecommunications plant in service 6561 (3) Depreciation expense—property held for future telecommunications use 6562 Note: All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B). Disbursement Equity percentage FFB Financial Requirement Statement (FRS) Government mortgage Hardship loan Interim construction Interest expense Account names Number (1) Interest and related items 7500 (2) Interest on funded debt 7510 (3) Interest expense—capital leases 7520 (4) Amortization of debt issuance expense 7530 (5) Less Allowance for funds used during construction 7340/7300.4 (6) Other interest deductions 7540 Note: All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B). Interim financing Lien accommodation Loan Loan documents Loan funds Material and supplies Account names Number (1) Material and Supplies 1220.1 Note: All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B). Net income/Net margins Account names Number (1) Local Network Services Revenues 5000 through 5069 (2) Network Access Services Revenues 5080 through 5084 (3) Long Distance Network Services Revenues 5100 through 5169 (4) Miscellaneous Revenues 5200 through 5270 (5) Nonregulated Revenues 5280 (6) Less Uncollectible Revenues 5200 through 5302 (7) Less Plant Specific Operations Expense 6110 through 6441 (8) Less Plant Nonspecific Operations Expense 6510 through 6565 (9) Less Customer Operations Expense 6610 through 6623 (10) Less Corporate Operations Expense 6710 through 6790 (11) Other Operating Income and Expense 7100 through 7160 (12) Less Operating Taxes 7200 through 7250/7200.5 (13) Nonoperating Income and Expense 7300 through 7370 (14) Less Nonoperating Taxes 7400 through 7450/7400.5 (15) Less Interest and Related Items 7500 through 7540 (16) Extraordinary Items 7600 through 7640/7600.4 (17) Jurisdictional Differences and Nonregulated Income Items 7910 through 7990 Note: All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B). Net plant Account names Number (1) Property, Plant and Equipment 2001 through 2007 (2) Less Depreciation and Amortization 3100 through 3600 Note: All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B). Notes Pari Passu Plant Account names Number (1) Property, Plant and Equipment 2001 through 2007 Note: All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B). Private lender Private lender notes Private loan RE Act (Act) et. seq. RUS RUS cost-of-money loan Subordination Tangible plant Account names Number (1) Telecommunications Plant in Service—General Support Assets 2110 through 2124 (2) Telecommunications Plant in Service—Central Office Assets 2210 through 2232 (3) Telecommunications Plant in Service—Information Origination/Termination Assets 2310 through 2362 (4) Telecommunications Plant in Service—Cable and Wire Facilities Assets 2410 through 2441 (5) Amortizable Tangible Assets 2680 through 2682 (6) Nonoperating Plant 2006 Note: All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B). Telecommunication services Times interest earned ratio (TIER) Total assets Account names Number (1) Current Assets 1100s through 1300s (2) Noncurrent Assets 1400s through 1500s (3) Total telecommunications plant 2001 through 2007 (4) Less accumulated depreciation 3100 through 3300s (5) Less accumulated amortization 3400 through 3600s Note: All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B). Total equity or net worth Total liabilities Account names Number (1) Current Liabilities 4010 through 4130.2 (2) Long-Term Debt 4210 through 4270.3 (3) Other Liabilities and Deferred Credits 4310 through 4370 Note: All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B). Total long-term debt Account names Number (1) Long-Term Debt 4210 through 4270.3 Note: All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B). Weighted-average life of the loans or notes Weighted-average remaining life of the loans or notes Weighted-average remaining useful life of the assets Wholly-owned subsidiary [66 FR 41758, Aug. 9, 2001, as amended at 84 FR 59922, Nov. 7, 2019] §§ 1744.22-1744.29 [Reserved] § 1744.30 Automatic lien accommodations. (a) Purposes and requirements for approval. (b) Private lender responsibility. (c) Refinancing and refunding. (1) No default has occurred and is continuing under the Government mortgage; (2) The borrower has delivered to the Administrator, at least 10 business days before the private lender notes are to be executed, a certification and agreement executed by the President of the borrower's Board of Directors, such certification and agreement to be substantially in the form set forth in Appendix A of this subpart, providing that: (i) No default has occurred and is continuing under the Government mortgage; (ii) The principal amount of such refinancing or refunding notes will not be greater than 112 percent of the then outstanding principal balance of the notes being refinanced or refunded; (iii) The weighted-average life of the private loan evidenced by the private lender notes will not exceed the weighted-average remaining life of the notes being refinanced or refunded; (iv) The private lender notes will provide for substantially level debt service or level principal amortization over a period not less than the original remaining years to maturity; (v) Except as provided in the Government mortgage, the borrower has not agreed to any restrictions or limitations on future loans from RUS; and (vi) If the private lender determines that a supplemental mortgage is necessary, the borrower will comply with those procedures contained in paragraph (h) of this section for the preparation, execution, and delivery of a supplemental mortgage and take such additional action as may be required to secure the notes under the Government mortgage. (d) Financing assets to be owned directly by a borrower. (1) The borrower has achieved a TIER of not less than 1.5 and a DSC of not less than 1.25 for each of the borrower's two fiscal years immediately preceding the issuance of the private lender notes; (2) The ratio of the borrower's net plant to its total long-term debt at the end of any calendar month ending not more than 90 days prior to execution of the private lender notes is not less than 1.2, on a pro-forma basis, after taking into account the effect of the private lender notes and additional plant on the total long-term debt of the borrower; (3) The borrower's equity percentage, as of the most recent fiscal year-end, was not less than 25 percent; (4) No default has occurred and is continuing under the Government mortgage; (5) The borrower has delivered to the Administrator, at least 10 business days before the private lender notes are to be executed, a certification by an independent certified public accountant that the borrower has met each of the requirements in paragraphs (d)(1) and (d)(3) of this section, such certification to be substantially in the form in appendix B of this subpart; and (6) The borrower has delivered to the Administrator, at least 10 business days before the private lender notes are to be executed, a certification and agreement executed by the President of the borrower's Board of Directors, such certification and agreement to be substantially in the form in appendix C of this subpart: provided, that: (i) The borrower has met each of the requirements in paragraphs (d)(2) and (d)(4) of this section; (ii) The proceeds of the private lender notes are to be used for the construction or purchase of the plant and materials and supplies to provide telecommunications services in accordance with this section and such construction or purchase is expected to be completed not later than 4 years after execution of such notes; (iii) The weighted-average life of the private loan evidenced by the private lender notes does not exceed the weighted-average remaining useful life of the assets being financed; (iv) The private lender notes will provide for substantially level debt service or level principal amortization over a period not less than the original remaining years to maturity; (v) All of the assets financed by the private loans will be purchased or otherwise procured in bona fide arm's length transactions; (vi) The financing agreement with the private lender will provide that the private lender shall cease the advance of funds upon receipt of written notification from RUS that the borrower is in default under the RUS loan documents; (vii) Except as provided in the Government mortgage, the borrower has not agreed to any restrictions or limitations on future loans from RUS; and (viii) If the private lender determines that a supplemental mortgage is necessary, the borrower will comply with those procedures set forth in paragraph (h) of this section for the preparation, execution, and delivery of a supplemental mortgage and take such additional action as may be required to secure the notes under the Government mortgage. (e) Financing assets to be owned by a wholly-owned subsidiary of the borrower. (1) The borrower has achieved a TIER of not less than 2.5 and a DSC of not less than 1.5 for each of the borrower's two fiscal years immediately preceding the issuance of the private lender notes; (2) The ratio of the borrower's net plant to its total long-term debt at the end of any calendar month ending not more than 90 days prior to execution of the private lender notes is not less than 1.6, on a pro-forma basis, after taking into account the effect of the private lender notes and additional plant on the total long-term debt of the borrower; (3) The borrower's equity percentage, as of the most recent fiscal year-end, was not less than 45 percent; (4) No default has occurred and is continuing under the Government mortgage; (5) The borrower has delivered to the Administrator, at least 10 business days before the private lender notes are to be executed, a certification by an independent certified public accountant that the borrower has met each of the requirements in paragraphs (e)(1) and (e)(3) of this section, such certification to be substantially in the form in appendix D of this subpart; and (6) The borrower has delivered to the Administrator, at least 10 business days before the private lender notes are to be executed, a certification and agreement executed by the President of the borrower's Board of Directors, such certification and agreement to be substantially in the form in appendix E of this subpart; providing that: (i) The borrower has met each of the requirements in paragraphs (e)(2) and (e)(4) of this section; (ii) The proceeds of the private lender notes are to be used for the construction or purchase of the tangible plant and materials and supplies to provide telecommunications services in accordance with this section and such construction or purchase is expected to be completed not later than 4 years after execution of such notes; (iii) The weighted-average life of the private loan evidenced by the private lender notes does not exceed the weighted-average remaining useful life of the assets being financed; (iv) The private lender notes will provide for substantially level debt service or level principal amortization over a period not less than the original remaining years to maturity; (v) All of the assets financed by the private loans will be purchased or otherwise procured in bona fide arm's length transactions; (vi) The proceeds of the private lender notes will be lent to a wholly-owned subsidiary of the borrower pursuant to terms and conditions agreed upon by the borrower and subsidiary; (vii) The borrower will, whenever requested by RUS, provide RUS with a copy of the financing or guarantee agreement between the borrower and the subsidiary or any similar or related material including security instruments, loan contracts, or notes issued by the subsidiary to the borrower; (viii) The borrower will promptly report to the Administrator any default by the subsidiary or other actions that impair or may impair the subsidiary's ability to repay its loans; (ix) The financing agreement with the private lender will provide that the private lender shall cease the advance of funds upon receipt of written notification from RUS that the borrower is in default under the RUS loan documents; (x) Except as provided in the Government mortgage, the borrower has not agreed to any restrictions or limitations on future loans from RUS; and (xi) If the private lender determines that a supplemental mortgage is necessary, the borrower will comply with those procedures contained in paragraph (h) of this section for the preparation, execution, and delivery of a supplemental mortgage and take such additional action as may be required to secure the notes under the Government mortgage. (f) Borrower notification. (1) The board resolution cited in § 1744.55(b)(1) and the opinion of counsel cited in § 1744.55(b)(2); (2) The applicable certification or certifications required by paragraph (c)(2); paragraphs (d)(5) and (d)(6); or paragraphs (e)(5) and (e)(6), respectively, of this section, in substantially the form contained in the applicable appendices to this subpart. (g) RUS acknowledgment. (h) Supplemental mortgage. (1) The private lender preparing the supplemental mortgage shall execute and forward the completed document to RUS. Upon ascertaining the correctness of the form and the information concerning RUS, RUS will execute and forward the supplemental mortgage to the borrower. (2) When requested by the borrower, RUS will expeditiously prepare the supplemental mortgage, using the form in appendix F to this subpart, upon submission by the private lender of: (i) The name of the private lender; (ii) The Property Schedule for inclusion as supplemental mortgage Schedule B, containing legally sufficient description of all real property owned by the borrower; and (iii) The amount of the private lender note. (3) The government is not responsible for ensuring that the supplemental mortgage has been executed by all parties and is a valid and binding instrument enforceable in accordance with its terms, and recorded and filed in accordance with applicable law. If the private lender determines that additional security instruments or other documents are required or that RUS must take additional actions to secure the private lender notes under the mortgage, the private lender shall follow the procedures established in §§ 1744.40 or 1744.50, as appropriate. Except for the actions of the government expressly established in § 1744.40, the government undertakes no obligation to effectuate an automatic lien accommodation. When processing of the supplemental mortgage has been completed to the satisfaction of the private lender, the borrower shall provide RUS with the following: (i) A fully executed counterpart of the supplemental mortgage, including all signatures, seals, and acknowledgements; and (ii) Copies of all opinions rendered by borrower's counsel to the private lender. (i) Other approvals. (2) To the extent that the borrower's existing mortgage requires RUS approval before the borrower can make an investment in an affiliated company, approval is hereby given for all investments made in affiliated companies with the proceeds of private lender notes qualifying for an automatic lien accommodation under paragraph (e) of this section. Any reference to an approval by RUS under the mortgage shall apply only to the rights of RUS and not to any other party. [66 FR 41760, Aug. 9, 2001] § 1744.40 Act purposes. (a) Borrowers are encouraged to submit requests for accommodation of the Government's lien on the borrower's system in order to facilitate obtaining financing from private lenders for purposes provided in the RE Act. (b) The Administrator will consider requests for the subordination of the Government's lien on after-acquired property which will enable borrowers to obtain financing from private lenders for purposes provided in the Act: Provided, however, that property integral to the operation of projects financed with loans made or guaranteed by RUS shall be financed with funds obtained through lien accommodations instead of lien subordinations, unless the Administrator determines that it is in the Government's interest to do otherwise. [51 FR 32430, Sept. 12, 1986. Redesignated at 55 FR 39396, Sept. 27, 1990, and further redesignated at 66 FR 41760, Aug. 9, 2001] §§ 1744.41-1744.49 [Reserved] § 1744.50 Non-Act purposes. (a) The Administrator will consider requests for the accommodation of the Government's lien on the borrower's system or the subordination of the Government's lien on after-acquired property which will enable the borrowers to obtain financing from private lenders for the purpose of providing new telecommunication services which may not be eligible for financing under the Act if the Administrator is satisfied that: (1) The borrower will have the ability to repay its existing and proposed indebtedness; (2) The security for outstanding Government loans and guarantees is reasonably adequate and will not be adversely affected by the accommodation or subordination; and (3) Approval of the request is in the interests of the Government with respect to the financial soundness of the borrower and other matters, such as assuring that the borrower's system is constructed cost-effectively using sound engineering practices. (b) In determining that the security for outstanding Government loans and guarantees is reasonably adequate and will not be adversely affected by the accommodation or subordination the Administrator will consider, among other matters, when applicable, the following: (1) Market forecasts for the project; (2) Projected revenues, expenses and net income of the borrower's existing system and the project; (3) Maximum debt service on indebtedness of both the borrower's system and the project; (4) Projected rate of return on the borrower's investment in the project; (5) Fair market value of property acquired by the borrower as part of the project; (6) Impact of the project on the ratio of the borrower's secured debt to assets; (7) Projected growth in borrower's system and project equity; and (8) Amount of funds available for plant additions, replacements and other similar costs of the system and the project. (c) In determining whether the accommodation or subordination is in the interests of the Government, the Administrator may consider, among other matters, whether the project will improve the borrower's financial strength and the assurance of repayment of Government debt. [51 FR 32430, Sept. 12, 1986. Redesignated at 55 FR 39396, Sept. 27, 1990, as amended at 59 FR 43716, Aug. 25, 1994. Redesignated at 66 FR 41760, Aug. 9, 2001, as amended at 66 FR 41763, Aug. 9, 2001] §§ 1744.51-1744.54 [Reserved] § 1744.55 Application procedures. (a) Requests for information regarding applications for lien accommodations or subordination under this part should be addressed to the Assistant Administrator, Telecommunications Program, Rural Utilities Service, Washington, DC 20250-1590. (b) An application for a lien accommodation or subordination shall include the following supporting information: (1) A board Resolution from the applicant requesting the lien accommodation or subordination and stating the general purpose for which the funds from the private lender will be used, the proposed amount of the loan, and the proposed terms and conditions of the loan; (2) An opinion from counsel representing the applicant that the applicant has the authority under its articles of incorporation, bylaws, and under applicable state law to undertake the project; (3) Engineering and pertinent studies related to the projects or purposes to be financed, when applicable; (4) Feasibility studies with pro forma financial statements showing the ability to repay the loan and provide an appropriate margin or net income; (5) Any other information or documentation deemed pertinent by the borrower or the Administrator in support of the application. (c) When the Administrator makes a determination that an application for an accommodation or subordination will not be approved the Administrator shall set forth the reasons therefor in writing and furnish such determination and reasons to the borrower within 30 days of the determination. [51 FR 32430, Sept. 12, 1986. Redesignated at 55 FR 39396, Sept. 27, 1990, and further redesignated at 66 FR 41760, Aug. 9, 2001, as amended at 66 FR 41763, Aug. 9, 2001] §§ 1744.56-1744.59 [Reserved] Appendix A to Subpart B of Part 1744—Statement, Certification, and Agreement of Borrower's President of Board of Directors Regarding Refinancing and Refunding Notes Pursuant to 7 CFR 1744.30(c) [66 FR 41763, Aug. 9, 2001] Appendix B to Subpart B of Part 1744—Certification of Independent Certified Public Accountant Regarding Notes To Be Issued Pursuant to 7 CFR 1744.30(c) [66 FR 41763, Aug. 9, 2001] Appendix C to Subpart B of Part 1744—Statement, Certification, and Agreement of Borrower's President of Board of Directors Regarding Notes To Be Issued Pursuant to 7 CFR 1744.30( d [66 FR 41763, Aug. 9, 2001] Appendix D to Subpart B of Part 1744—Certification of Independent Certified Public Accountant Regarding Notes To Be Issued Pursuant to 7 CFR 1744.30 [66 FR 41763, Aug. 9, 2001] Appendix E to Subpart B of Part 1744—Statement, Certification, and Agreement of Borrower's President of Board of Directors Regarding Notes To Be Issued Pursuant to 7 CFR 1744.30( e [66 FR 41763, Aug. 9, 2001] Appendix F to Subpart B of Part 1744—Form of Supplemental Mortgage [66 FR 41763, Aug. 9, 2001] Subpart C—Advance and Disbursement of Funds Source: 54 FR 12186, Mar. 24, 1989, unless otherwise noted. Redesignated at 55 FR 39396, Sept. 27, 1990. § 1744.60 General. (a) The standard loan documents (as defined in 7 CFR part 1758) contain provisions regarding advances and disbursements of loan funds by telephone borrowers. This part implements certain of the provisions by setting forth requirements and procedures to be followed by borrowers in obtaining advances and making disbursements of loan and nonloan funds. (b) This part supersedes any sections of RUS Bulletins with which it is in conflict. § 1744.61 [Reserved] § 1744.62 Introduction. RUS is under no obligation to make or approve advances of loan funds unless the borrower is in compliance with all terms and conditions of the loan documents. The borrower shall use funds in its construction fund only to make disbursements approved by RUS. § 1744.63 The telephone loan budget. When the loan is made, RUS provides the borrower a Telephone Loan Budget, RUS Form 493. This budget divides the loan into budget accounts such as “Engineering.” When a contract or other document is approved by RUS, funds are encumbered from the appropriate budget account. See 7 CFR part 1753. § 1744.64 Budget adjustment. (a) If more funds are required than are available in a budget account, the borrower may request RUS's approval of a budget adjustment to use funds from another account. The request shall include an explanation of the change, the budget account to be used, and a description of how the adjustment will affect loan purposes. RUS will not approve a budget adjustment that affects other loan purposes unless the borrower satisfies RUS that the additional funds are available from another source, requests a deficiency loan, or scales back the project. (b) RUS may make a budget adjustment without a formal request by the borrower when a budget account is insufficient to encumber funds for a contract that otherwise would be approved by RUS. See 7 CFR part 1753. § 1744.65 The construction fund. (a) The construction fund is used by the borrower primarily to hold advances until disbursed. (b) All advances shall be deposited in the construction fund. (c) RUS may require that other funds be deposited in the construction fund. These may include equity or general fund contributions to construction, service termination payments, proceeds from the sale of property, amounts recovered from insurance for losses during the construction period, and interest received on loan funds in savings or interest bearing checking accounts, and similar receipts. Deposit slips for any deposit to the construction fund shall show the source and amount of funds deposited and be executed by an authorized representative of the bank. (d) Funds shall be disbursed only up to the amount approved for advance on the FRS as described in § 1744.66. No funds may be withdrawn from the fund except for loan purposes approved by RUS. (e) The disbursement of nonloan funds requires the same RUS approvals as loan funds. (f) Disbursements must be evidenced by canceled checks. The invoices and supporting documentation needed for construction contracts are specified in the contracts and in 7 CFR part 1753. Disbursements to reimburse the borrower's general funds shall be documented by a reimbursement schedule, to be retained in the borrower's files, § 1744.66 The financial requirement statement (FRS). (a) To request advances, the borrower must submit to RUS an FRS, a description of the advances desired, and other information related to the transactions when required by RUS. (b) The FRS is used by RUS and the borrower to record and control transactions in the construction fund. Approved contracts and other items are shown on the FRS under “Approved Purposes.” Except as noted below, the amount approved for advance is 100 percent of the amount encumbered for that item. Funds are approved for advance as follows: (1) Construction Construction contracts and force account proposals. (ii) Work orders. (iii) Work order fund. (iv) Real estate. (v) Right of way procurement. (vi) Joint use charges. (2) Engineering Preloan engineering. (ii) Postloan engineering contracts. (iii) Force account engineering. (3) Office equipment, vehicles and work equipment. (4) General Organization and loan expenditures. (ii) Construction overhead. (iii) Legal fees. (iv) Bank stock. (5) Operating expenses Working capital—new system. (ii) Current operating deficiencies. (6) Debt retirement and refinancing. (7) Acquisitions. (c) Funds other than loan funds deposited in the construction fund, which shall include proceeds from the sale of property on which RUS has a lien, (lines 10 and 11 on the FRS) are reported as a credit under total disbursements. Disbursements of these funds are subject to the same RUS approvals as loan funds. (d) The borrower shall request advances as needed to meet its obligations promptly. Generally, RUS does not approve an advance requested more than 60 days before the obligation is payable. (e) Funds should be disbursed for the item for which they were advanced. If the borrower needs to pay an invoice for which funds have not been advanced, and disbursement of advanced funds for another item has been delayed, the latter funds may be disbursed to pay the invoice up to the amount approved for advance for that item on the FRS. The borrower shall make erasable entries on the next FRS showing the changes under “Total Advances to Date” and shall explain the changes in writing before RUS will process the next FRS. (f) Advances will be rounded down to the nearest thousands of dollars except for final amounts. (g) The certification on each of the three copies of the FRS sent to RUS shall be signed by a corporate officer of manager authorized by resolution of the board of directors to sign such statements. At the time of such authorization a certified copy of the resolution and one copy of RUS Form 675, Certificate of Authority, shall be submitted to RUS. (h) The documentation required for the FRS transactions are the deposit slips, the canceled construction fund checks and the supporting invoices or reimbursement schedules. These shall be kept in the borrower's files for periodic audits by RUS. [54 FR 12186, Mar. 24, 1989. Redesignated at 55 FR 39396, Sept. 27, 1990, as amended at 56 FR 26600, June 10, 1991] § 1744.67 Temporary excess construction funds. (a) When unanticipated events delay the borrower's disbursement of advanced funds, the funds may be used as follows: (1) With RUS loan funds for loans approved prior to November 1, 1993, or hardship loan funds, the borrower may invest the funds in 5 percent Treasury Certificates of Indebtedness—RUS Series. (2) With RUS cost-of-money or FFB loan funds, the following apply: (i) The borrower may invest the funds in short term securities issued by the United States Treasury. (ii) If permitted by state law, the borrower may deposit the funds in savings accounts, including certificates of deposit, of federally insured savings institutions. (3) Funds advanced by a guaranteed lender other than the FFB may, if so permitted by such lender, be invested under the terms and conditions described above for FFB advances. (4) Any security or investment made under this authorization shall identify the borrower by its corporate name followed by the words “Trustee, Rural Utilities Service.” (5) All temporary investments and all income derived from them shall be considered part of the construction fund and be subject to the same controls as cash in that account. (6) Securities and other investments shall have maturity dates or liquidating provisions that ensure the availability of funds as required for the completion of projects and the payment of obligations. (7) Any instrument evidencing a security or other investment herein authorized to be purchased or made, may not be sold, discounted, or pledged as collateral for a loan or as security for the performance of an obligation or for any other purpose. (8) The Administrator may, at his sole discretion, require a borrower to pledge any security or other evidence of investment authorized hereby by forwarding to him all pertinent instruments and related documentation as he may reasonably require. (9) Borrowers shall be responsible for the safekeeping of securities and other investments. (b) All interest and income received from investments of temporary excess funds, as described in this section, shall be deposited in the Construction Fund. (c) The borrower shall account for investment proceeds on the next FRS submitted to RUS. RUS will make the necessary adjustments on budgetary records. (d) The Administrator reserves the right to suspend any borrower's authorization to invest temporary excess funds contained herein if the borrower does not comply with the requirements. (e) For RUS loans approved prior to October 1, 1991, the borrower may return advanced funds to RUS as a refund of an advance. Interest stops accruing on the refunded advance upon receipt by RUS. A refunded advance may be readvanced. A refund of an advance shall be sent to the Rural Utilities Service, United States Department of Agriculture, Collections and Custodial Section, Washington, DC, 20250. The borrower should clearly indicate that this is a refund of an advance, and not a loan payment or prepayment. [54 FR 12186, Mar. 24, 1989. Redesignated at 55 FR 39395, Sept. 27, 1990, as amended at 58 FR 66257, Dec. 20, 1993; 84 FR 59922, Nov. 7, 2019] § 1744.68 Order and method of advances of telephone loan funds. (a) Borrowers may specify the sequence of advances of funds under any combination of approved telephone loans from RUS or FFB, except that for all loans approved on or after November 1, 1993, the borrower may use loan funds: (1) Only for purposes for which that type of loan ( i.e. (2) Only in exchanges that qualify for the type of loan from which the funds are drawn. (b) The first or subsequent advances of loan funds may be conditioned on the satisfaction of certain requirements stated in the borrower's loan contract. (c) Normally, only one payment is made by the Automatic Clearing House (ACH) for an advance of funds. (d) Borrowers of RUS funds may request advances by wire service only for amounts greater than $500,000 or for advances to borrowers outside the Continental United States. FFB advances in any amount over $100,000 can be sent by wire service. (e) The following information shall be included with the FRS: (1) Name and address of borrower's bank. (2) If borrower's bank is not a member of the Federal Reserve System, the name and address of its correspondent bank that is a member of the Federal Reserve System. (3) American Bankers Association (ABA) nine digit identifier of the receiving banks (routing number and check digit). (4) Borrower's bank account title and number. (5) Any other necessary identifying information. [54 FR 12186, Mar. 24, 1989. Redesignated at 55 FR 39395, Sept. 27, 1990, as amended at 58 FR 66257, Dec. 20, 1993, as amended at 84 FR 59922, Nov. 7, 2019] § 1744.69 [Reserved] Subpart D [Reserved] Subpart E—Borrower Investments Source: 58 FR 52642, Oct. 12, 1993, unless otherwise noted. § 1744.200 General statement. (a) RUS telephone borrowers are encouraged to utilize their own funds to participate in the economic development of rural areas, provided that such activity does not impair a borrower's ability to provide modern telecommunications services at reasonable rates or to repay its indebtedness to RUS and other lenders. When considering loans, investments, or guarantees, borrowers are expected to act in accordance with prudent business practices and in conformity with the laws of the jurisdictions in which they serve. (b) [Reserved] [58 FR 52642, Oct. 12, 1993, as amended at 84 FR 59923, Nov. 7, 2019] § 1744.201 Definitions. As used in this subpart: Administrator Advance Affiliated company Borrower Extension of credit Guarantee (1) Guarantees of payment or collection on a note or other debt instrument; (2) Issuing performance bonds or completion bonds; or (3) Cosigning leases or other obligations of third parties. Maximum investment ratio Minimum total assets ratio Net plant Account Names Number (1) Telecommunications plant in service 2001 (2) Property held for future telecommunications use 2002 (3) Telecommunications plant under construction-short term 2003 (4) Telecommunications plant under construction-long term 2004 (5) Telecommunications plant adjustment 2005 (6) Nonoperating plant 2006 (7) Goodwill 2007 (8) Less accumulated depreciation 3100 through 3300s (9) Less accumulated amortization 3400 through 3600s Note: Net worth Account Names Number (1) Capital stock 4510 (2) Additional paid-in capital 4520 (3) Treasury stock 4530 (4) Other capital 4540 (5) Retained earnings 4550 Note: Qualified investment RE Act et seq. REA Rural development investment RUS RUS mortgage Total assets Account Names Number (1) Current assets 1100s through 1300s (2) Noncurrent assets 1400s through 1500s (3) Total telecommunications plant 2001 through 2007 (4) Less accumulated depreciation 3100 through 3300s (5) Less accumulated amortization 3400 through 3600s Note: Uniform System of Accounts [58 FR 52642, Oct. 12, 1993, as amended at 59 FR 66440, Dec. 27, 1994; 84 FR 59923, Nov. 7, 2019] § 1744.202 Borrowers may make qualified investments without prior approval of the Administrator. (a) A borrower that equals or exceeds the minimum total assets ratio may make a qualified investment, defined in paragraph (b) of this section without prior written approval of the Administrator. (b) A qualified investment is a rural development investment, defined in paragraph (d) of this section meeting the following criteria: (1) Unless the borrower's commitment is a guarantee, extension of credit, or advance, the borrower receives any financial return accruing to such investment, or the borrower's proportionate share of such return; (2) Unless the borrower's commitment is a guarantee, extension of credit, or advance, the borrower retains title to any asset acquired with such investment, or the borrower's proportionate share of such title; and (3) The funds committed are the borrower's own funds. As used in this subpart, the term own funds shall not include proceeds of loans made, guaranteed or lien accommodated by RUS; funds necessary to make timely payments of principal and interest on loans made, guaranteed or lien accommodated by RUS; and funds on deposit in the cash construction fund-trustee account, as defined in the borrower's loan contract with RUS. (c) A rural development investment will not be considered to be a qualified investment to the extent that the amount of such investments exceeds the borrower's maximum investment ratio. (d) A rural development investment is an investment, extension of credit, advance, or guarantee by a borrower for a period longer than one year and for one or more of the following purposes: (1) Improve the economic well-being of rural residents and alleviate the problems of low income, elderly, minority, and otherwise disadvantaged rural residents; (2) Improve the business and employment opportunities, occupational training and employment services, health care services, educational opportunities, energy utilization and availability, housing, transportation, community services, community facilities, water supplies, sewage and solid waste management systems, credit availability, and accessibility to and delivery of private and public financial resources in the maintenance and creation of jobs in rural areas; (3) Improve state and local government management capabilities, institutions, and programs related to rural development and expand educational and training opportunities for state and local officials, particularly in small rural communities; (4) Strengthen the family farm system; or (5) Maintain and protect the environment and natural resources of rural areas. (e) As used in paragraph (d) of this section, the term rural development investment shall include investments by a borrower in its own name, in affiliated companies, and in entities not affiliated with the borrower. § 1744.203 Establishing amount of rural development investment. For purposes of determining whether a rural development investment is within the limits of the borrower's maximum investment ratio or the minimum total assets ratio, the amount of the qualified investment shall be the total amount of funds committed to the rural development project as of the date of determination. The total amount of funds committed to the rural development project includes: (a) The principal amount of loans and advances made by the borrower; (b) Guarantees made by the borrower; and (c) A reasonable estimate of the amount the borrower is committed to provide to the rural development project in future years. § 1744.204 Rural development investments that do not meet the ratio requirements. (a) Each borrower is authorized to make investments other than qualified investments only in accordance with the provisions of the borrower's mortgage with RUS. Without RUS's approval, the portion of any investment of funds or commitment to invest funds for any rural development investment that will exceed the borrower's maximum investment ratio or cause the borrower to fall below the minimum total assets ratio, must comply with the provisions of the RUS mortgage. (b) RUS will consider, on a case-by-case basis, requests for approval of rural development investments not constituting qualified investments. RUS may condition such approval, if granted, on such requirements and restrictions as RUS may determine to be in the best interests of the Government, including, without limitation, the borrower's agreement to limit dividends or distributions of capital by an amount specified by RUS. Requests for such approvals must be submitted in writing to the relevant RUS regional office and shall include: (1) A description of the rural development project and the type of investment to be made, such as a loan, guarantee, stock purchase or equity investment; (2) A reasonable estimate of the amount the borrower is committed to provide to the rural development project including investments that may be required in the future; and (3) A pro forma balance sheet and cash flow statement for the period covering the borrower's future commitments to the rural development project. (c) In determining whether to approve a rural development investment that may cause the borrower to exceed the maximum investment ratio or to fall below the minimum total assets ratio in the future, RUS will consider annual increases to the borrower's net worth and total assets as might be reasonably anticipated from the borrower's normal operations. § 1744.205 Determinations and application of limitations described in § 1744.202. (a) RUS will not include qualified investments, including qualified investments in affiliated companies, in calculating the amount of dividend or capital distributions a borrower may make under its RUS mortgage. (b) A borrower's investment in its net plant shall not be considered a rural development investment for purposes of calculating the maximum investment ratio or the minimum total assets ratio. (c) The borrower's net worth and total assets shall be determined using the balances of the respective accounts of the borrower as of December 31 of the last complete calendar year preceding the date on which the borrower's maximum investment ratio and minimum total assets ratio are calculated. (d) All determinations required to be made under 7 U.S.C. 926 or this subpart will be made in accordance with the Uniform System of Accounts (USoA)(47 CFR part 32). References to specific USoA accounts shall include revised or replacement accounts. § 1744.206 Effect of subsequent failure to maintain ratios. If an expenditure constitutes a qualified investment under the terms of this subpart, it does not cease to be a qualified investment merely because subsequently the borrower fails to maintain the maximum investment ratio or the minimum total assets ratio. § 1744.207 Investment not to jeopardize loan security. A borrower shall not make a qualified investment or a rural development investment which jeopardizes: (a) The security of loans made or guaranteed by RUS; or (b) The borrower's ability to repay such loans under the terms and conditions as agreed. § 1744.208 Rural development investments before November 28, 1990. All investments made by a borrower shall be subject to the provisions of this subpart, regardless of when the investment was made or whether it has been approved by RUS. Any restrictions required by RUS as a condition to approving a rural development investment before November 28, 1990, shall continue to be in effect to the extent that such investment exceeds the maximum investment ratio or causes the borrower to fall below the minimum total assets ratio. § 1744.209 Records. (a) The records of borrowers, including records relating to qualified investments, shall be subject to the auditing procedures prescribed in part 1773 of this chapter. RUS reserves the right to review the records of the borrower relating to qualified investments to determine if the borrower is in compliance with this subpart. (b) Borrowers shall report to RUS on the end-of-year operating report, RUS Form 479, the current status and principal amount of each qualified investment it has made or is committed to make pursuant to § 1744.202. (Approved by the Office of Management and Budget under control number 0572-0098) § 1744.210 Effect of this subpart on RUS loan contract and mortgage. (a) Except as expressly provided in this subpart, the borrower shall comply with all provisions of its loan contract with RUS, its notes issued to RUS, and the RUS mortgage, including all provisions thereof relating to investments not covered by this subpart. (b) Nothing in this subpart shall affect any rights of supplemental lenders under the RUS mortgage, or other creditors of the borrower, to limit a borrower's investments, loans and guarantees to levels below those permitted in § 1744.202. (c) As used in paragraph (b) of this section, supplemental lender means a creditor of the borrower, other than RUS, whose loan to the borrower is secured by the RUS mortgage.