7 CFR Part 1786 — Prepayment of RUS Guaranteed and Insured Loans to Electric and Telephone Borrowers

PART 1786—PREPAYMENT OF RUS GUARANTEED AND INSURED LOANS TO ELECTRIC AND TELEPHONE BORROWERS Authority: 7 U.S.C. 901-950b; Title I, subtitle B, Pub. L. 99-509; Pub. L. 101-624, 104 Stat. 4051; Pub. L. 103-354, 108 Stat. 3178, (7 U.S.C. 6941 et seq. Source: 55 FR 1145, Jan. 11, 1990, unless otherwise noted. Subpart A—General [Reserved] §§ 1786.1-1786.24 [Reserved] Subpart B—Prepayment of RUS Guaranteed Federal Financing Bank Loans Pursuant to Section 306(A) of the RE Act Authority: 7 U.S.C. 901-950b; Title I, Subtitle B, Pub. L. 99-509; Title I, Pub. L. 100-202; Pub. L. 100-203; Title VI, Pub. L. 100-460; Pub. L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq. Source: 55 FR 1145, Jan. 11, 1990, unless otherwise noted. Redesignated at 55 FR 49250, Nov. 27, 1990. § 1786.25 Purpose. This subpart contains the general regulations of the Rural Utilities Service (RUS) for implementing the provisions of (a) section 306(A) of the Rural Electrification Act of 1936, as amended (RE Act); (b) section 633 of the Rural Development, Agriculture, and Related Agencies Appropriations Act, 1988 (Pub. L. 100-202) (the continuing resolution); and (c) section 637 of the Rural Development, Agriculture, and Related Agencies Appropriations Act, 1989 (Pub. L. 100-460) (the 1989 Appropriations Act) which permit, in certain circumstances, loans made by the Federal Financing Bank (FFB) and guaranteed by the Administrator of RUS to be prepaid by RUS electric and telephone borrowers by paying the outstanding principal balance due on the FFB loan, using a private loan with the existing RUS guarantees or using internally generated funds. § 1786.26 Policy. It is the policy of RUS to facilitate the prepayment of FFB loans in accordance with the provisions of section 306(A) of the RE Act and section 633 of the continuing resolution as modified by section 637 of the 1989 Appropriations Act. Furthermore, consistent with the RE Act, the continuing resolution and the 1989 Appropriations Act, it is the policy of RUS to implement the objectives of the prepayment program in a manner which does not result in an increase in loan guarantee risk or an inappropriate increase in the administrative burden on RUS. § 1786.27 Definitions and rules of construction. (a) Definitions. Administrator Application Category Application period (1) In the case of telephone borrowers, the period commencing on February 12, 1990 and ending on March 12, 1990; (2) In the case of financially distressed borrowers, the period commencing October 1, 1990 and ending on July 30, 1993; or (3) In the case of other borrowers, the period to be announced by RUS. Borrower Business Day Continuing Resolution Date Received Documentation Electric Program Applications Existing Loan Guarantee Fees Financially Distressed Borrower Financially Viable Lender (1) A lender (i) which has a capital and surplus of at least $50 million; (ii) is a beneficiary of an irrevocable letter of credit, in form and substance satisfactory to the Administrator, payable to it in the amount of $50 million; (iii) is the beneficiary of a guarantee, in form and substance satisfactory to the Administrator, in the amount of $50 million from a lending institution with a capital and surplus of at least $50 million; or (iv) has other credit support, in form and substance satisfactory to the Administrator, in the amount of $50 million; or (2) In the event of a prepayment totalling less than $100 million, a lender (i) which has a capital and surplus of at least $10 million; (ii) is a beneficiary of an irrevocable letter of credit, in form and substance satisfactory to the Administrator, payable to it in the amount of $10 million; (iii) is the beneficiary of a guarantee, in form and substance satisfactory to the Administrator, in the amount of $10 million from a lending institution with a capital and surplus of at least $10 million; or (iv) has other credit support, in form and substance satisfactory to the Administrator, in the amount of $10 million; FFB FFB Loan Guarantee Increase in Loan Guarantee Risk Internally Generated Funds Lender lender Loan Guarantee Agreement Loan Guarantee Risk (1) The outstanding principal balance of a loan; (2) The dollar weighted average interest rate (stated as an annual percentage rate) on a loan; (3) The final maturity date of a loan; (4) The annual principal amortization of the loan; and (5) Any other factor that as determined by RUS increases the magnitude or duration of the guarantee. Mortgage 1989 Appropriations Act Notice of Intent to Prepay the Federal Financing Bank Prepayment Authority Private Loan Pro-rated Percentage RE Act REA RUS Service Servicing (1) The billing and collecting of the private loan payments from the borrower; (2) Notifying the Administrator promptly of any default in the payment of principal and interest on the private loan and submitting a report, as soon as possible thereafter, setting forth the servicer's views as to the reasons for the default, how long the servicer expects the borrower to be in default, and what corrective actions the borrower states it is taking to achieve a current debt service position; (3) Notifying the Administrator of any known violations or defaults by the borrower under the lending agreement, loan guarantee agreement, the mortgage, or related security instruments, or conditions of which the servicer or the lender is aware which might lead to nonpayment, violation or other default; and (4) Such other activities as may be specified in the loan guarantee agreement. Settlement Date Standard Electric Program Application Telephone Borrower Telephone Program Applications (b) Rules of Construction. [55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35426, Aug. 30, 1990. Redesignated at 55 FR 49250, Nov. 27, 1990, as amended at 59 FR 66440, Dec. 27, 1994] § 1786.28 Qualifications. (a) Borrowers. (1) Demonstrate that the FFB loan was outstanding on July 2, 1986; (2) Prepay the FFB loan by: (i) Using a private loan with the existing loan guarantee; (ii) Using internally generated funds; or (iii) Using a combination of a private loan with the existing loan guarantee and internally generated funds; and (3) Certify that any savings resulting from such prepayment will be passed on to its customers, or used to improve the financial strength of the borrower in cases of financial hardship. (b) Lenders. (1) Be a private legally organized lender, or a lender established pursuant to the Farm Credit Act of 1971, as amended; (2)(i) Be subject to credit examination and supervision by either an agency of the United States or a state and be in good standing with its licensing authority and have met the requirements, if any, of licensing, lending and loan servicing in the state where the collateral for the Loan is located; (ii) Be a financially viable lender; or (iii) Be a trust administered. by an entity meeting the requirements of paragraph (b)(2) (i) or (ii) of this section; and (3) Have the capability to adequately service the private loan either by using its own resources or by contracting for such resources with a financially viable lender. Under no circumstances may the borrower or an affiliate of the borrower service the private loan. A qualified lender may participate out each private loan to entities other than a Government agency, the borrower, or an affiliate of the borrower, provided that such participation shall be on terms and conditions satisfactory to the Administrator. (c) Private Loans. (1) The private loan shall provide for the periodic payment of interest by the borrower not less frequently than annually, at either a variable or fixed rate in a manner which shall not result in an increase in loan guarantee risk. (i.e. The dollar weighted average interest rate on the private loan shall be less than or equal to the dollar weighted average interest rate on the FFB loan being prepaid, so that: Where, C r C o A i th T i th n = The number of years that have elapsed since the initial prepayment; J = The initial term of the private loan, at the time of prepayment; Subject to the constraint that A 1 o (2) Principal payments on the private loan shall be made either quarterly, semiannually, or annually and shall commence on or before the last day of the calendar year during which the prepayment pursuant to this subpart was made. (3) With the approval of the Administrator, the lender may refund the private loan with the proceeds of another loan from the same lender, with the existing guarantee and under terms, conditions, and a structure substantially similar to the private loan, on such dates as the lender, the borrower and RUS may agree, provided however, that such a refunding loan shall comply with the provisions of § 1786.28(c) hereof. Additionally, with the approval of the Administrator, the private loan may be prepaid either in whole or in part at any time by the borrower using its general funds. (4) The private loan and the guaranteed note evidencing the private loan shall not be directly or indirectly part of a transaction the income of which is excluded from gross income for the purposes of Chapter I of the Internal Revenue Code of 1986. (5) The guaranteed note evidencing the private loan shall not be transferable or assignable except (i) With the written approval of the Administrator; (ii) In the event that the guaranteed note evidencing the private loan is held by a trust, to a similar trust, in connection with a refunding loan made by the lender pursuant to § 1786.28(c)(3); or (iii) As an undivided pro rata interest in a pool of obligations. (6) The loan documentation shall provide RUS with the right to accelerate the note evidencing the private loan upon the occurrence of any “Event of Default” under the mortgage with the effect that all of the unpaid principal and interest on any such note shall become immediately due and payable to RUS, and RUS shall continue to pay under its guarantee the principal of and interest on such note without taking into account such acceleration. The loan documentation shall also provide RUS with a right, upon the occurrence of such an “Event of Default,” to accelerate payment on its guarantee and accelerate payment on the note evidencing the private loan on the earlier of any date the interest rate on the private loan is reset, without premium or penalty; any date the borrower may prepay in accordance with the terms of the private loan, or the tenth anniversary of the date the private loan first bears interest at a fixed interest rate. (7) The principal of the private loan shall not include amounts attributable to fees associated with the private loan. At the time it submits its application, a borrower may request that the Administrator approve the inclusion of amounts attributable to fees as part of the interest rate on the private loan, if the net effective interest rate including such fees meets the test contained in § 1786.28(c)(1). For the purposes of these regulations, such financed fees shall be considered “interest”. (8) Private loans and guaranteed notes evidencing private loans shall otherwise be in form and substance satisfactory to the Administrator. (d) Prepayments Without a Guarantee. (1) The borrower notifies RUS, of its intent to prepay using internally generated funds in accordance with the application procedures set forth in this subpart; and (2) The borrower submits a certification to RUS that the prepayment does not, materially adversely affect the financial stability of the borrower and its ability to meet all its obligations, including debt service on all loans made, guaranteed or lien accommodated under the RE Act which will remain outstanding after the date of the prepayment. (e) The Use of both a Private Loan and Internally Generated Funds. (1) The private loans comply with the provisions of paragraph (c) of this section, and (2) The borrower complies with paragraph (d) of this section. (f) FFB loans. (1) Qualifying Borrowers. (2) Financially distressed borrowers. [55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35426, Aug. 30, 1990. Redesignated at 55 FR 49250, Nov. 27, 1990] § 1786.29 Prepayment authority, program allocations, categories of prepayment applications and financially distressed borrowers' reserve. (a) Prepayment Authority. (b) Program Allocations. (c) Categories of Prepayment Applications. (1) Electric Program Applications. (2) Telephone Program Applications. (d) Financially distressed borrowers' reserve. [55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35427, Aug. 30, 1990. Redesignated at 55 FR 49250, Nov. 27, 1990] § 1786.30 Processing procedure. (a) Priority of Processing. (1) Applications from telephone borrowers; (2) Applications from financially distressed borrowers; (3) Applications from all other borrowers. When assigning priority to such applications, RUS will consider a number of factors, including without limitation, (i) the number of prepayment applications being processed by the area office; (ii) the novelty or complexity of the proposed transaction; (iii) the method of prepayment; and (iv) the availability of resources. In the event that RUS receives during the initial application period, prepayment applications from such borrowers in an amount less than remaining prepayment authority for each respective program, RUS will establish a new application period and publish a notice to that effect in the Federal Register. (b) Pro-rated Applications. (1) The principal amount of FFB advances under each individual application, which, if prepaid pursuant to this subpart, would result in an economic savings to the borrower, shall be divided by the aggregate principal amount of FFB advances, under all of the applications, which, if prepaid pursuant to this subpart, would result in an economic savings to the borrowers, in order to determine a percentage (hereinafter called a pro-rated percentage) for each borrower; (2) Each borrower's share of the prepayment authority for its application category shall be equal to the product of (i) the prepayment authority times (ii) the respective pro-rated percentage, and may be used to prepay a portion of any of the borrower's FFB loans listed pursuant to § 1786.31(a)(2); (3) If any approved prepayment transaction fails to be settled within 180 days of the date the borrower is notified by RUS of its prepayment allocation, RUS may rescind its approval. The unused prepayment authority represented by such a failed transaction is subject to being included in any subsequent notice of a new application period under this subpart; and (4) In the event that applications from financially distressed borrowers exceed the amount prepayment authority remaining in the financially distressed borrowers' reserve, the Administrator at his discretion shall select one or more of such applications and allocate the reserve. In making such a selection and allocation, the Administrator may consider various factors, including without limitation, (i) the dollar amount of savings to be realized by the proposed prepayment; (ii) the interest rates on the FFB loans proposed to be prepaid; (iii) the magnitude of the default or potential default; and (iv) whether the borrower has previously completed a prepayment under section 306(A). (c) Notification of Borrowers' Allocations. [55 FR 1145, Jan. 11, 1990, as amended at 55 FR 49250, Nov. 27, 1990] § 1786.31 Application procedure. Applications to make a prepayment pursuant to this subpart shall be submitted to RUS on such forms as RUS may prescribe in the following manner: (a) Application. (1) “Notice of Intent to Prepay the Federal Financing Bank” in the form specified in § 1786.33 hereof; (2) A listing of each FFB loan advance to be prepaid by loan designation, RUS note number, RUS account number, advance date, maturity date, original amount, outstanding balance, and interest rate; (3) Evidence that the borrower meets the qualification provisions of § 1786.28(a) of these regulations; (4) The certification set forth in part A of the Notice of Intent to Prepay the Federal Financing Bank executed by the chief executive officer of the borrower; (5) In the event that a borrower submits a prepayment application which proposes to utilize a portion of the financially distressed borrowers' reserve, a certification signed by the chief executive officer of the system to the effect that the borrower is either (i) in default or near default on interest or principal payments due on loans made or guaranteed under the RE Act, and is making a good faith effort to increase rates and reduce costs to avoid or mitigate default; or (ii) participating in a work out or debt restructuring plan with RUS, either as the borrower being restructured or as a borrower providing assistance as part of the work out or restructuring and stating why the borrower is in default or near default. (b) Election of Method of Prepayment. (c) Final Documentation. (1) A completed copy of the Notice of Intent to Prepay the Federal Financing Bank; (2) In the event that a borrower proposes to utilize a private loan in connection with a prepayment or a portion of a prepayment, (i) Evidence, in form and substance satisfactory to RUS, that the borrower has an irrevocable commitment from the lender to close the private loan on the settlement date at an interest rate that meets the requirements of § 1786.28(c)(1); (ii) Evidence that the lender meets the qualification provisions of § 1786.28(b); (iii) Evidence that the private loan meets the qualification provisions of § 1786.28(c); and (iv) The final documentation for the private loan; (3) Estimate of fees, and expenses, including any taxes, in connection with the prepayment transaction; (4) A certified copy of a resolution of the board of directors of the borrower approving the certification cited above and requesting RUS approval of the prepayment. (5) In the case of financially distressed borrowers, evidence in form and substance satisfactory to the Administrator that the benefits of prepayment will not be used to reduce rates and that any Federal or state regulatory body having jurisdiction over the borrower's rates has acknowledged its awareness of this requirement; (6) In the event that borrower is unable to deliver final documentation or the evidence specified in accordance with, § 1786.31(c), RUS may reschedule the settlement date at its discretion. (Approved by the Office of Management and Budget under control number 0572-0088) § 1786.32 Settlement procedure. (a) General. (b) Settlement date. (c) Place of settlement. (d) Repayment of FFB. (e) Documentation. (1) The guaranteed note evidencing the private loan. (2) The guarantee. (3) The loan guarantee agreement. (4) Copy of the private loan agreement between the lender and the borrower. (5) Evidence that the borrower has received all approvals which are required under Federal or state law, loan agreements, security agreements, existing financing arrangements, or any other agreement to which the borrower is a party. (6) An amendment in recordable form revising the description of the obligations secured by the mortgage including the obligation of the borrower to reimburse RUS for any amounts that RUS may pay under the guarantee. (7) An approving opinion of the borrower's legal counsel to the effect that the guaranteed note evidencing the private loan is a valid and legally binding obligation of the borrower which is secured under the mortgage, and the priority of the mortgage, as amended pursuant to paragraph (e)(6) of this section, remains undisturbed. (8) An approving opinion of the lender's legal counsel to the effect that the loan guarantee agreement is a valid and legally binding obligation of the lender. (9) Such other opinions of counsel as may be required by the Administrator. (10) Copies of any other documentation required by the lender. (11) Copies of any other documentation required by RUS to ensure that the obligations of the borrower to reimburse RUS for any amounts that RUS pays under the guarantee or may advance in connection with the private loan are adequately secured under the mortgage. (Approved by the Office of Management and Budget under control number 0572-0088) § 1786.33 Forms. Guarantees and loan guarantee agreements executed by RUS pursuant to this subpart will be on forms prescribed by RUS. Such forms will include, without limitation, additional details on servicing, procedures for notifying RUS of a default, the manner for requesting payment on a guarantee. The Notice of Intent to Prepay the Federal Financing Bank shall be substantially in the form specified by RUS. RUS may also prescribe standard forms of certifications to be used in connection with materials required to be furnished pursuant to § 1786.31 of this subpart. § 1786.34 Access to records of lenders, servicers, and trustees. The lender, the servicer, or the trustee will permit representatives of RUS (or other agencies of the U.S. Department of Agriculture authorized by that Department) to inspect and make copies of any of their records pertaining to RUS guaranteed loans. Such inspection and copying may be made during regular office hours of the respective party or any other time the party and RUS find convenient. § 1786.35 Loss, theft, destruction, mutilation, or defacement of RUS guarantee. (a) Authorized representative. (b) Requirements. (1) A certificate of loss properly notarized which includes: (i) Legal name and present address of the owner, requesting the replacement forms; (ii) Legal name and address of lender of record; (iii) Capacity of person certifying; (iv) Full identification of the guarantee, including the name of the borrower, date of the guarantee, face amount of the evidence of debt purchased, date of evidence of debt and present balance of the loan. Any existing parts of the documents to be replaced should be attached to the certificate; (v) A full statement of circumstances of the loss, theft, or destruction of the guarantee; and (vi) The lender or holder, shall present evidence demonstrating current ownership of the guarantee and note. If the present holder is not the same as the original lender, a copy of the endorsement of each successive holder in the chain of transfer from the initial private lender to present holder shall be included. If copies of the endorsement cannot be obtained, best available records of transfer shall be presented to RUS (e.g., order confirmation, cancelled checks, etc). (2) An indemnity bond acceptable to RUS shall accompany the request for replacement except when the holder is the United States, a Federal Reserve Bank, a Federal Government Corporation, a state or territory, or the District of Columbia. The bond may be with or without surety. The bond shall be with surety except when the outstanding principal balance and accrued interest due the present holder is less than $1,000,000 verified by the lender in writing in a letter of certification of balance due. The surety shall be a qualified surety company holding a certificate of authority from the Secretary of the Treasury and listed in Treasury Department Circular 580. (3) All indemnity bonds shall be issued and/or payable to the United States of America acting through the Administrator of the Rural Utilities Service. The bond shall be in an amount not less than the unpaid principal and interest. The bond shall save RUS harmless against any claim or demand which might arise or against any damage, loss, costs, or expenses which might be sustained or incurred by reasons of the loss or replacement of the instruments. § 1786.36 Other prepayments. Nothing contained in this subpart shall prohibit a borrower from making prepayments of FFB loans in accordance with the terms thereof. § 1786.37 Application of regulation to previous prepayments. Nothing contained in this subpart shall affect the validity of prepayments made or guarantees issued pursuant to previous regulations. Those borrowers, however, that completed a prepayment pursuant to section 306(A) of the RE Act and closed loans prior to February 27, 1988, may, in their discretion request RUS approval and if required by prior regulations the concurrence of the Secretary of the Treasury, of any amendments necessary to make the terms and conditions of such loans consistent with, or to consolidate such loans with, loans guaranteed under these regulations. § 1786.38 Judicial review. This subpart is intended to set forth RUS policies and procedures for the orderly administration of the provisions of section 306(A) of the RE Act, section 633 of the continuing resolution, and section 637 of the 1989 Appropriations Act and is not intended to create any right or benefit, substantive or procedural, enforceable at law by a party against the United States, its agencies, its officers or any person. §§ 1786.39-1786.49 [Reserved] Subpart C—Special Discounted Prepayments on RUS Direct/Insured Loans Authority: 7 U.S.C. 901-950b; Title I, Subtitle B, Pub. L. 99-509; Pub. L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq. Source: 51 FR 46999, Dec. 29, 1986, unless otherwise noted. Redesignated at 55 FR 49250, Nov. 27, 1990. § 1786.50 Purpose. This subpart sets forth the policies and procedures of RUS whereby electric and telephone borrowers may prepay outstanding RUS Notes at the Discounted Present Value of the RUS Notes with private financing. § 1786.51 Definitions. As used in this subpart: Act et seq. Administrator Discounted Present Value Fund REA RUS RUS Loan Agreement RUS Notes [51 FR 46999, Dec. 29, 1986. Redesignated at 55 FR 49250, Nov. 27, 1990, as amended at 59 FR 66441, Dec. 27, 1994] § 1786.52 Prepayment. Through September 30, 1987, the Administrator may, pursuant to this subpart, permit eligible electric and telephone borrowers to prepay all outstanding RUS Notes issued or assumed by such borrowers and held in the Fund, upon paying the lesser of the outstanding balance or the Discounted Present Value. § 1786.53 Discounted present value. The Discounted Present Value shall be calculated five business days before prepayment is made by summing the present values of all remaining payments by using the following formula: Where: P k th n = Total number of remaining payments dates. I = The discount rate, in decimals, which shall be the average rate on utility bonds bearing a rating of “Aa” as set forth in that issue of Moody's Public Utility News Reports most recently published prior to the date on which Discounted Present Value is calculated. D1 1 th D2 i th § 1786.54 Eligibility criteria. To be eligible to prepay RUS Notes at the Discounted Present Value a borrower must comply with the following criteria: (a) The borrower must be current on all payments due on its outstanding RUS Notes and all other payment obligations owed to RUS and the Rural Telephone Bank. (b) The borrower must agree to prepay all of its outstanding RUS Notes. (c) The borrower must identify the source of private financing that will be used to refinance its outstanding RUS Notes, which financing may not include obligations the income of which is exempt from taxation under the Internal Revenue Code of 1986. (d) The borrower must have expended all funds advanced on account of the RUS Notes for the purposes for which such funds were advanced. (e) The borrower must agree to a rescission of the unadvanced balance of the RUS Notes. (f) The borrower must agree that the borrower, its successors or assigns, shall pay to the Government, as a condition of receiving additional loans or loan guarantees pursuant to Titles I, II and III of the Act, an amount equal to the aggregate of the difference with respect to each of the RUS Notes between the amount outstanding on the RUS Note and the Discounted Present Value of the RUS Note upon prepayment with interest accruing quarterly; the interest rates shall be the rates provided in the respective RUS Notes. (g) If the borrower is a party to a wholesale power contract with a power supplier financed pursuant to the Act, the borrower must provide the Administrator with such assurances as the Administrator may request that it will meet its obligations to the power supplier. § 1786.55 Application procedure. Any borrower seeking to prepay its RUS Notes under this subpart should apply to the appropriate RUS Area Director by submitting: (a) A board resolution that: (1) Requests approval of the prepayment of the borrower's outstanding RUS Notes, and (2) States the intent of the borrower to comply with all eligibility criteria set forth in § 1786.54 of this subpart. (b) A list of all RUS Notes together with the outstanding amount on such notes. (c) Such additional information as the Administrator shall request. § 1786.56 Approval of applications. The applications will ordinarily be reviewed and, if satisfactory, approved, and closing schedule based on the order in which executed prepayment agreements are received. The Administrator may limit the number of applications approved and closings scheduled from time to time taking into account, among other matters, the financial interests and administrative considerations of the Government. § 1786.57 Prepayment agreement. Upon approving an application for prepayment under this subpart, the Administrator shall notify the borrower and deliver to the borrower for its execution a prepayment agreement which shall set forth and provide: (a) The RUS Notes to be prepaid and when the Discounted Present Value will be calculated. (b) The place and conditions for closing. (c) Agreement that the unadvanced balance of RUS Notes shall be rescinded. (d) Agreement that the borrower, or its successors or assigns, shall pay to the Government, as a condition of receiving additional loans or loan guarantees pursuant to Titles I, II and III of the Act, an amount equal to the aggregate of the difference with respect to each of the RUS Notes between the amount outstanding on the RUS Note and the Discounted Present Value of the RUS Note upon prepayment with interest accruing quarterly; the interest rates shall be the rates provided in the respective RUS Notes. (e) Assurances that the borrower will meet its obligations to any power supplier financed pursuant to the Act. (f) Such other terms and conditions as the Administrator deems appropriate. § 1786.58 Security. If, after prepayment of RUS Notes, the Government should continue to hold liens on the borrower's property that secure loans made or guaranteed pursuant to the Act, the Administrator of RUS or the Governor of the Rural Telephone Bank, as the case may be, will consider request for the accommodation of such liens for the purpose of providing security for loans the proceeds of which were used to prepay RUS Notes. Such lien accommodations shall be limited in amount to the Discounted Present Value of the RUS Notes plus such costs, as the Administrator shall determine to be reasonable, incurred by the borrower in obtaining such loans. § 1786.59 Loan fund audit. Within 6 months of closing RUS shall have the right to audit transactions involving the RUS construction fund established and maintained by the borrower pursuant to the terms of the RUS Loan Agreement and to inspect all books, records, accounts and other documents and papers of the borrower. Should RUS determine that the borrower has made disbursements of funds advanced pursuant to RUS Notes which do not comply with the requirements of the RUS Loan Agreement, the borrower shall be required to pay to the Government an amount equal to the difference between the amount which the borrower prepaid on such RUS Notes evidencing RUS loan funds which were improperly disbursed and the amount which the borrower would otherwise have been required to return to the Government as a result of noncompliance if the borrower had not prepaid such RUS Notes. (See 7 CFR part 1721) § 1786.60 Closing. (a) The borrower shall be responsible for obtaining all approvals necessary to consummate the transaction as required by the prepayment agreement including such approvals as may be required by regulatory bodies and other lenders. (b) The RUS Notes shall be prepaid at a closing to be held in accordance with the prepayment agreement; Provided, however, § 1786.61 Other prepayments. RUS loan documentation generally permits borrowers to prepay RUS Notes by paying the outstanding balance due thereon. Nothing in this subpart shall prohibit any borrower from prepaying its outstanding RUS Notes in accordance with the terms thereof. The provisions of this subpart shall not be applicable to such prepayment. §§ 1786.62-1786.74 [Reserved] Subpart D [Reserved] Subpart E—Discounted Prepayments on RUS Notes in the Event of a Merger of Certain RUS Electric Borrowers Source: 56 FR 37268, Aug. 6, 1991, unless otherwise noted. § 1786.95 Purpose. This subpart sets forth the policies and procedures of RUS whereby certain electric borrowers may prepay outstanding RUS Notes at the Discounted Present Value of the RUS Notes with private financing. § 1786.96 Definitions. As used in this subpart: Act et seq. Administrator Consolidation (1) The combination, pursuant to state law, of two or more borrower or nonborrower organizations into a new successor organization that takes over the assets and assumes the liabilities of those organizations; or (2) Any other transaction including an acquisition which has substantially the same effect. Discounted Present Value Fund Merger (1) The combination, pursuant to state law, of two or more borrower or nonborrower organizations into an existing survivor organization that takes over the assets and assumes the liabilities of the merged organizations; or (2) Any other transaction including an acquisition which has substantially the same effect. REA RUS RUS Loan Agreement RUS Notes [56 FR 37268, Aug. 6, 1991, as amended at 59 FR 66440, Dec. 27, 1994] § 1786.97 Prepayment. There were 29 former RUS electric borrowers that prepaid their direct or insured loans under section 306B(a) of the Act prior to October 1, 1987. (See subpart C of this part.) These borrowers are listed in appendix A to subpart E of this part. Any RUS electric borrower which is the result of a merger or consolidation involving any of these 29 former borrowers and a borrower with outstanding Notes may, after meeting all requirements of this subpart, prepay all outstanding RUS Notes issued or assumed by the borrower upon paying the lesser of the outstanding balance or the Discounted Present Value. Such prepayment must be made not later than one year after the effective date of the merger or consolidation. § 1786.98 Discounted present value. (a) The Discounted Present Value shall be calculated by RUS before prepayment is made by summing the present values of all remaining payments on all outstanding notes according to the following formula to compute the discounted present value of each note and adjusting as here and after provided for tax exempt financing. Where: P k th D1 i th D2 i th (b) Notwithstanding paragraph (a) of this section, in the event that the borrower shall elect to prepay using tax exempt financing, the calculation of the Discounted Present Value shall be adjusted to make the discount the equivalent of fully taxable financing. § 1786.99 Eligibility criteria. To be eligible to prepay RUS Notes at the Discounted Present Value, a borrower must comply with the following criteria: (a) The borrower must be current on all payments due on its outstanding RUS Notes and all other payment obligations owed to RUS; (b) The borrower must agree to prepay all of its outstanding RUS Notes; (c) The borrower must identify the source of financing that will be used directly or indirectly to refinance its outstanding RUS Notes. The borrower must certify in writing whether such financing will be tax exempt and, if so, shall furnish all information on the financing as RUS may request to enable RUS to adjust the discount to the equivalent to fully taxable financing; (d) The borrower must have expended all funds advanced on account of the RUS Notes for the purposes for which such funds were advanced or repaid RUS for all unexpended funds; (e) The borrower must agree to a rescission of the unadvanced balance of any RUS Notes outstanding as of the date of its application for prepayment; (f) The borrower must agree that the borrower, its successors and assigns, shall pay to the Government, as a condition of receiving additional loans or loan guarantees pursuant to titles I and III of the Act, an amount equal to the aggregate of the difference with respect to each of the RUS Notes between the amount outstanding on the RUS Note and the Discounted Present Value of the RUS Note upon prepayment with interest accruing quarterly; the interest rates shall be the rates provided in the respective Notes; and (g) If the borrower is a party to a wholesale power contract with a power supplier financed pursuant to the Act, the borrower must provide the Administrator with such assurances as the Administrator may request that it will meet its obligations to the power supplier. The borrower must also specifically agree to the following limitation: The borrower agrees that, for so long as the Wholesale Power Contract shall be in effect between the borrower and the power supplier, the borrower will not, without the approval in writing of the power supplier and the Administrator, take or suffer to be taken any steps for reorganization or to consolidate with or merge into any corporation or any other public power district, or to sell, lease or transfer (or make any agreement therefor) all or a substantial portion of its assets, whether now owned or hereafter acquired. Notwithstanding the foregoing, the borrower may take or suffer to be taken any steps for reorganization or to consolidate with or merge into any corporation or any other public power district, or to sell, lease or transfer (or make any agreement therefor) all or a substantial portion of its assets, whether now owned or hereafter acquired, so long as the borrower shall pay such portion of the outstanding indebtedness evidenced by the power supplier's Notes at the time outstanding as shall be determined by the power supplier with the prior written consent of the Administrator and shall otherwise comply with such reasonable terms and conditions as the Administrator and the Power Supplier shall require. § 1786.100 Application procedure. Any borrower seeking to prepay its RUS Notes under this Subpart should apply to the appropriate RUS Area Director not less than 60 days prior to one year after the effective date of the merger or consolidation by submitting: (a) A board resolution that: (1) Requests approval of the prepayment of the borrower's outstanding RUS Notes; (2) States the intent of the borrower to comply with all eligibility criteria set forth in § 1786.99 of this subpart; and (3) Identifies the source of financing. (b) A list of all RUS Notes together with the outstanding amount on such notes. (c) An opinion of counsel as to the effective date of the merger or consolidation. (d) Such additional information as the Administrator will request. § 1786.101 Approval of application. The applications will be reviewed and, if satisfactory, approved. Closing will be scheduled upon approval. § 1786.102 Prepayment agreement. Upon approving an application for prepayment under this subpart, the Administrator shall notify the borrower and deliver to the borrower for its execution a prepayment agreement which shall set forth and provide: (a) The RUS Notes to be prepaid and when the Discounted Present Value will be calculated. (b) The place, date and conditions for closing. (c) Agreement that the unadvanced balance of RUS Notes shall be rescinded. (d) Agreement that the borrower, or its successors or assigns, shall pay to the Government, as a condition of receiving additional loans or loan guarantees pursuant to titles I and III of the Act, an amount equal to the aggregate of the difference with respect to each of the RUS Notes between the amount outstanding on the RUS Note and the Discounted Present Value of the prepaid RUS Note; with interest accruing quarterly. The interest rates shall be the rates provided in the respective RUS Notes. (e) Assurances that the borrower will meet its obligations to any power supplier financed pursuant to the Act. (f) Such other terms and conditions as the Administrator deems appropriate. § 1786.103 Security. If, after prepayment of RUS Notes, the Government should continue to hold liens on the borrower's property, the Administrator of RUS will consider a request for the accommodation of such liens for the purpose of providing security for loans the proceeds of which were used to prepay RUS Notes. Such lien accommodations shall be limited in amount to the Discounted Present Value of the RUS Notes plus such costs, as the Administrator shall determine to be reasonable, incurred by the borrower in obtaining such loans. § 1786.104 Loan fund audit. RUS shall have the right to audit within 6 months of closing, transactions involving the RUS construction fund established and maintained by the borrower pursuant to the terms of the RUS Loan Agreement and to inspect all books, records, accounts and other documents and papers of the borrower. Should RUS determine that the borrower has made disbursements of funds advanced pursuant to RUS Notes which do not comply with the requirements of the RUS Loan Agreement, the borrower shall be required to pay the Government an amount equal to the difference between the amount which the borrower prepaid on such RUS Notes evidencing RUS loans funds which were improperly disbursed and the amount which the borrower would otherwise have been required to return to the Government as a result of noncompliance if the borrower had not prepaid such RUS Notes. (See 7 CFR part 1721, Post-Loan Policies and Procedures for Insured Electric Loans.) § 1786.105 Closing. (a) The borrower shall be responsible for obtaining all approvals necessary to consummate the transaction as required by the prepayment agreement, including such approvals as may be required by regulatory bodies and other lenders. (b) The RUS Notes shall be prepaid at a closing to be held in accordance with the prepayment agreement. RUS shall designate the date of closing which in no event shall be later than one year after the effective date of the merger or consolidation. At closing, in addition to paying all current interest due on the date of prepayment, a borrower shall prepay the RUS Notes by paying to the Government an amount equal to the lesser of the outstanding balance or the Discounted Present Value of the RUS Notes. The closing shall otherwise be conducted as prescribed in the prepayment agreement. § 1786.106 Other prepayments. RUS loan documentation generally permits borrowers to prepay RUS Notes by paying the outstanding balance due thereon. Nothing in this subpart shall prohibit any borrower from prepaying its outstanding RUS Notes in accordance with the terms thereof. The provisions of this subpart shall not be applicable to such prepayment. Appendix A to Subpart E of Part 1786—Listing of Eligible Borrowers State Borrower name and address Colorado Colorado-Ute Electric Assn., Inc., Montrose. Florida Lee County Electric Coop. Inc., North Fort Myers. Indiana Clark County Rural Elec. Memb. Corp., Sellersburg. Louisiana Beauregard Electric Cooperative, Inc., Deridder. Missouri Culvre River Electric Cooperative, Inc., Troy. Nebraska Roosevelt Public Power District, Mitchell. Nebraska Howard Greely Rural Public Power Dist., St. Paul. Nebraska Cuming County Public Power District, West Point. Nebraska York County Rural Public Power District, York. Nebraska Elkhorn Rural Public Power District, Battle Creek. Nebraska Southern Nebraska Rural P. P. D., Grand Island. Nebraska McCook Public Power District, McCook. Nebraska Niobrara Valley Electric Memb. Corp., O'Neill. Nebraska Cornhusker Public Power District, Columbus. Nebraska Custer Public Power District, Broken Bow. Nebraska Northwest Rural Public Power Dist., Hay Springs. Nebraska Southwest Public Power District, Palisade. Nebraska Loup Valleys Rural Public Power District, Ord. Nebraska South Central Public Power District, Nelson. Oklahoma Peoples' Electric Cooperative, Ada. Texas Deaf Smith County Electric Coop. Inc., Hereford. Texas Pedernales Electric Coop. Inc., Johnson City. Texas Bandera Electric Cooperative, Inc., Bandera. Texas Guadalupe Valley Electric Coop., Inc., Gonzales. Texas Bluebonnet Electric Cooperative, Inc., Giddings. Texas Cap Rock Electric Cooperative, Inc. Stanton. Texas San Bernard Electric Cooperative, Inc., Bellville. Washington Inland Power & Light Company, Spokane. Washington Pub. Util. Dist. No. 1 Grays Harbor Co., Aberdeen. Appendix B to Subpart E of Part 1786—Federal Reserve Statistical Release Federal Reserve Statistical Release These data are released each Monday. The availability of the release will be announced when the information is available, on (202) 452-3206. H. 15 (519) For immediate release February 4, 1991. Selected Interest Rates [Yields in percent per annum] Instruments 1991 Jan. 28 1991 Jan. 29 1991 Jan. 30 1991 Jan. 31 1991 Feb. 1 This week Last week 1991 Jan. Federal Funds (effective) 1 2 3 7.61 7.16 6.96 8.18 6.30 7.46 6.88 6.91 Commercial paper 3 4 5 1-Month 6.88 6.96 6.95 6.99 6.73 6.90 6.83 7.12 3-Month 6.92 6.96 6.94 6.95 6.67 6.89 6.92 7.10 6-Month 6.87 6.91 6.88 6.88 6.58 6.82 6.86 7.02 Finance paper placed directly 3 4 6 1-Month 6.76 6.85 6.83 6.83 6.55 6.76 6.68 6.95 3-Month 6.75 6.83 6.83 6.76 6.46 6.73 6.77 6.92 6-Month 6.53 6.53 6.59 6.53 6.19 6.47 6.55 6.59 Bankers acceptances (top rated) 3 4 7 3-Month 6.80 6.82 6.77 6.68 6.30 6.67 6.76 6.96 6-Month 6.67 6.70 6.65 6.55 6.15 6.54 6.63 6.84 CDS (secondary market) 3 8 1-Month 6.78 6.85 6.87 6.82 6.52 6.77 6.77 7.10 3-Month 6.94 6.95 6.93 6.88 6.51 6.84 6.94 7.17 6-Month 6.95 6.98 6.95 6.88 6.51 6.85 6.97 7.17 Eurodollar deposits (London) 3 9 1-Month 6.81 6.88 6.88 6.88 6.88 6.86 6.81 7.13 3-Month 6.94 7.06 7.00 6.94 6.94 6.98 7.01 7.23 6-Month 7.00 7.00 7.00 6.94 6.94 6.98 7.04 7.23 Bank prime loan 2 3 10 9.50 9.50 9.50 9.50 9.50 9.50 9.50 9.52 Discount window borrowing 2 11 6.50 6.50 6.50 6.50 6.00 6.50 6.50 6.50 U.S. Government securities Treasury bills Auction average 3 4 12 3-Month 6.22 6.22 6.14 6.30 6-Month 6.28 6.28 6.21 6.34 1-Year 6.22 Auction average (investment) 12 3-Month 6.41 6.41 6.32 6.49 6-Month 6.58 6.58 6.50 6.64 Secondary market 3 4 3-Month 6.25 6.22 6.20 6.19 6.00 6.17 6.12 6.22 6-Month 6.26 6.26 6.24 6.20 5.97 6.19 6.20 6.28 1-Year 6.24 6.20 6.17 6.13 5.91 6.13 6.19 6.25 Treasury Constant maturities 13 1-Year 6.64 6.59 6.56 6.51 6.27 6.51 6.58 6.64 2-Year 7.12 7.10 7.07 7.05 6.83 7.03 7.09 7.13 3-Year 7.38 7.35 7.34 7.30 7.10 7.29 7.35 7.38 5-Year 7.67 7.64 7.64 7.62 7.45 7.60 7.66 7.70 7-Year 7.93 7.90 7.90 7.89 7.75 7.87 7.92 7.97 10-Year 8.06 8.05 8.05 8.03 7.91 8.02 8.04 8.09 30-Year 8.23 8.20 8.23 8.21 8.09 8.19 8.22 8.27 Composite Over 10 years (long-term) 14 8.29 8.26 8.29 8.27 8.15 8.25 8.28 8.33 Corporate bonds Moody's Seasoned AAA 9.03 9.01 9.00 8.99 8.96 9.00 9.05 9.04 BAA 10.43 10.37 10.35 10.33 10.24 10.34 10.44 10.45 A-Utility 15 9.65 9.65 9.80 9.83 State and local bonds 16 7.00 7.00 7.06 7.08 Conventional mortgages 17 9.56 9.56 9.61 9.64 Footnotes: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Note: Description of the Treasury Constant Maturity Series Yields on Treasury securities at “constant maturity” are interpolated by the U.S. Treasury from the daily yield curve. This curve, which relates the yield on a security to its time to maturity, is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of quotations reported by five leading U.S. Government securities dealers to the Federal Reserve Bank of New York. The constant maturity yield values are read from the yield curve at fixed maturities, currently 1, 2, 3, 5, 7, 10, and 30 years. This method provides a yield for a 10-year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity. Subpart F—Discounted Prepayments on RUS Electric Loans Authority: 7 U.S.C. 901 et seq.; et seq. Source: 59 FR 13620, Mar. 22, 1994, unless otherwise noted. § 1786.150 Purpose. This subpart sets forth the policies and procedures of RUS whereby borrowers may prepay, with private financing or internally generated funds, outstanding RUS Notes evidencing electric loans at the Discounted present value of the RUS Notes, pursuant to the provisions of section 306(B) of the RE Act as amended by Public Law 102-428, 106 Stat. 2183, adopted October 21, 1992. § 1786.151 Definitions and rules of construction. (a) Definitions. Administrator Borrower Business day Construction Fund Account Closing Closing date Closing request Direct loan Discounted present value Distribution borrower Electric loan Final maturity Government Insured loan Lien accommodation Loan guarantee Power supply borrower Preclosing notice Prepayment agreement Qualified Notes RE Act et seq. RUS RUS Loan Contract RUS Mortgage Rural development loans Rural development programs Supplemental lender Tax exempt financing (b) Rules of construction. § 1786.152 Prepayments of RUS loans. An electric loan made under the RE Act shall not be sold or prepaid at a value that is less than the outstanding principal balance, except that, on request of a borrower, an electric loan made under the RE Act, or a portion of such a loan, that was advanced before May 1, 1992, or has been advanced for not less than 2 years, shall be prepaid by the borrower at the lesser of the outstanding principal balance of the loan or the discounted present value thereof. § 1786.153 Discounted present value. (a) The discounted present value shall be calculated by summing the present values of all remaining payments on all Qualified Notes to be prepaid according to the following formula and adjusted as provided in paragraph (b) of this section if tax exempt financing is used. Where: The Greek letter, Sigma (Σ) means the sum of the following terms. The Greek letter, Pi (Π) means the product of the following terms. P k th n = Total number of remaining payment dates to final maturity. D1 i th D2 i th I = The discount rate applied to each transaction ascertained by using data specified in the “Federal Reserve Statistical Release” (H.15 (519)), which is published each Monday. The availability of this Release will be announced when the information is available by telephone on (202) 452-3206. See adjustment for tax exempt refinancing at paragraph (b) of this section. The specific discount rate will be based on the discount rate(s) specified in the “Treasury Constant Maturities” section of this publication 8 business days prior to the closing and will be interpolated from that information as follows: Remaining final maturity of RUS loan: Treasury constant maturities At least But less than # years # years 0 2 1-year. 2 3 2-year. 3 4 3-year. 4 5 ( 1 5 6 5-year. 6 7 ( 2 7 8 7-year. 8 9 ( 3 9 10 ( 3 10 11 10-year. 11 20 ( 4 20 21 20-year. 21 30 ( 5 30 36 30-year. Notes: 1 2 3 4 5 Where: I = The discount rate interpolated from the cost of money to the Treasury. A = The Treasury interest rate for the most recently published maturity (in years) that is the shortest Treasury term (in years) which is greater than the borrower's remaining term (in years) to final maturity; i.e., (if the note to be prepaid has a final maturity of more than 10 years then this rate is the 20-year Treasury rate) B = The Treasury interest rate for the most recently published maturity (in years) that is the longest Treasury term (in years) which is less than the borrower's remaining term (in years) to final maturity; i.e., (if the note to be prepaid has a final maturity of more than 10 years but less than 20 years then this term is the 10-year Treasury rate) C = The remaining number of full years to the final maturity of the borrower's note. Drop all fractions of a year and use the remaining full years. E = The published Treasury term (in years) to maturity which is the longest term to maturity for the published term that is less than the remaining term (in years) to final maturity of the borrower's note; i.e., (if the note to be prepaid has remaining years to maturity between 11 and 20 years then this term would be 10 or if the note to be prepaid has remaining years to maturity between 21 years and 30 years then this term would be 20). F = The published Treasury term (in years) to maturity which is the shortest term to maturity for the published term that is greater than the remaining term (in years) to maturity of the borrower's note; i.e., (if the note to be prepaid has remaining years to maturity between 11 and 20 years then this term would be 20 or if the remaining years to maturity is between 21 and 30 years then this term would be 30). Note: The percentage terms used in the above formula will be truncated to two decimal places. For the purpose of the terms A, B, E, and F above the published Treasury rate and term shall mean the Treasury Constant Maturities from the Federal Reserve Statistical Release for 7 years, 10 years, 20 years, and 30 years. (b)(1) In the event that the borrower prepays a loan under paragraph (a) of this section using, directly or indirectly, tax exempt financing, the discount shall be adjusted to ensure that the borrower receives a benefit that is no greater than the benefit the borrower would receive if the borrower used financing that was not tax exempt. The borrower shall certify in writing whether the financing will be tax exempt. (2) The discount rate established in paragraph (a) of this section shall be adjusted for a tax exempt financing by substituting for the “I” term in the discount rate formula, a discount rate equal to the interest rate(s) published pursuant to 7 CFR 1714.5, determination of interest rates on municipal rate loans. This is the interest rate established for the new RUS loan program which is based on municipal interest rates for issues of comparable maturity. No interpolation or average will be used. If a note is to be prepaid under this subpart and is subject to this tax exempt adjustment, the discount rate will be determined from the published table in the Federal Register. Federal Register § 1786.154 Qualified Notes. An eligible borrower may prepay Qualified Notes under this subpart at the discounted present value. A Qualified Note is a note evidencing an RUS electric loan, all advances of which were made prior to May 1, 1992, or not less than 2 years prior to the date of prepayment closing. See §§ 1786.155(a)(3) and 1786.158 (h) and (j). § 1786.155 Eligible borrower. (a) To be eligible to prepay an electric loan under this subpart, the borrower must be in compliance with the following: (1) The borrower shall be current on all payment obligations on outstanding loans made or guaranteed by RUS. For the purpose of determining eligibility for prepayment, a default by a power supply borrower from which a distribution borrower purchases wholesale power shall not be considered a default by the distribution borrower; (2) There shall exist no material defaults under the borrower's RUS Loan Contract and Mortgage; (3) The borrower shall have expended all funds advanced pursuant to the RUS Loan Contract for the purposes for which such funds were advanced. A borrower will not be eligible to prepay under this subpart if it has any funds advanced pursuant to the RUS Loan Contract in its Construction Fund Account; and (4) The borrower shall be current on all obligations under any wholesale power contract with an RUS financed power supply borrower. (b) The eligibility of borrowers that have had any indebtedness representing loans made or guaranteed by RUS restructured shall be determined on a case by case basis considering the terms and conditions of the restructuring agreement. § 1786.156 Application procedure. Any borrower seeking to prepay Qualified Notes under this subpart should apply to the appropriate RUS Regional Director or the Director of the Power Supply Division. The application shall provide the following: (a) Borrower's RUS designation; (b) Borrower's name and address; (c) A certified copy of a resolution of the board of directors of the borrower that the borrower wishes to enter into a prepayment agreement providing for the prepayment of all or a portion of its Qualified Notes; (d) Listing of each Qualified Note to be prepaid by loan designation, RUS account number, advance date, maturity date, original amount, and outstanding principal balance; (e) Evidence that the borrower has the ability to obtain the financing necessary to prepay its Qualified Notes listed in paragraph (d) of this section and identification of the source of financing and the need if any of obtaining a lien accommodation from RUS; and (f) Such additional information as the Administrator may request. § 1786.157 Approval of applications. (a) Ordinarily, within 30 days of receipt, an application will be reviewed and the borrower will be notified as to whether the application has been approved. If the application has not been approved, the borrower will be informed as to the reasons. If the application is approved the borrower shall thereafter be provided with a prepayment agreement for execution. (b) The Administrator may limit the number of applications approved and closings scheduled from time to time, taking into account, among other matters, administrative considerations of the RUS. § 1786.158 Terms and conditions of prepayment agreement. Upon receipt of a satisfactory application, RUS shall provide to the borrower for its execution a prepayment agreement, in form and substance satisfactory to RUS, which may include the following: (a) Provide for the prepayment of one or more Qualified Notes from time to time, but no more than two closings may be scheduled in any calendar year unless a third closing is for the prepayment of all outstanding electric loans of the borrower; (b) Set forth procedures and forms through which the borrower will notify the Government of each election it makes to prepay certain Qualified Notes upon a requested closing date and the Government will notify the borrower of the established closing date and prepayment amount for the Qualified Notes for each closing; (c) Reserve to the Administrator the right to reschedule closing dates to meet administrative considerations; (d) Set forth closing requirements identifying the location and manner of payment, and all documentation and information to be delivered prior to or at closing, including opinions of counsel and certificates from the borrower; (e) Provide for notice by either telephone or facsimile to be given by RUS to the borrower not more than 8 nor less than 3 business days before a scheduled closing date of the amount to be paid at closing which shall include all accrued interest and the discounted present value of the Qualified Notes to be prepaid; (f) Provide for notice of the 120 month period during which the borrower's eligibility for direct or insured loans will be restricted; (g) Set forth representations and warranties; (h) Require the borrower to prepay each Qualified Note specified in full; (i) Require the borrower to identify the source of the financing that will be used directly or indirectly to refinance the Qualified Notes. If the source is other than internally generated funds, the borrower must certify in writing whether such financing will be tax exempt, and if tax exempt financing will be used, furnish all information on the terms and conditions of the financing as RUS may require; (j) Require the borrower to rescind the unadvanced balance of all outstanding electric loans as of the date of initial closing; (k) Require the borrower, if it is a party to a wholesale power contract with a power supply borrower, to provide the Administrator with such assurances as the Administrator may require that it is in compliance with and will continue to comply with its obligation to such power supply borrower; (l) Provide RUS, if the Administrator determines it necessary, with security for all outstanding rural development loans and amendments to any outstanding rural development loan agreements in form and substance, and on terms and conditions, satisfactory to RUS; (m) Prescribe remedies for violating the terms and conditions of the prepayment agreement; (n) Provide for termination by RUS of the right for the borrower to prepay thereunder; (o) Provide evidence that any approvals required from any supplemental lender have been obtained; and (p) Set forth such other terms and conditions as the Administrator shall deem appropriate. § 1786.159 Initial closing. (a) Upon receipt of the prepayment agreement, the borrower may submit, pursuant to the terms of the prepayment agreement, a closing request which shall request a closing date no less than 30 business days from the date of the request. (b) The Government will respond to the borrower's closing request by delivering a preclosing notice to the borrower not less than 10 business days prior to the date which the Government, after reviewing the borrower's closing request, selects as a closing date. § 1786.160 Subsequent closings. (a) Each subsequent prepayment after the initial closing shall be facilitated with the submission of an additional closing request by the borrower. Each closing request must request a closing date no less than 30 business days from the date of the request. (b) The Government will respond to each subsequent closing request by delivering a preclosing notice to the borrower not less than 10 business days prior to the date which the Government, after reviewing the borrower's closing request, selects as a closing date in each case. § 1786.161 Return of Qualified Notes and release of lien. Upon payment to RUS at closing of the full amount specified in the notice delivered by RUS to the borrower pursuant to the terms of the prepayment agreement (see § 1786.158(e)), RUS will deliver to the borrower at closing those Qualified Notes which have been paid in full at such closing, and upon payment and discharge of all outstanding RUS debt obligations by the borrower, RUS will deliver to the borrower at the final closing a release of lien prepared by the borrower pursuant to the terms of the prepayment agreement. § 1786.162 Outstanding loan documents. (a) Except as expressly provided in this subpart, the borrower shall comply with all provisions of its RUS Loan Contract, its outstanding notes issued to RUS, and the RUS Mortgage. (b) Nothing in this subpart shall affect any rights of supplemental lenders under the RUS Mortgage, or other creditors of the borrower. (c) Nothing in this subpart shall prohibit a borrower from making prepayments of any loans pursuant to the RE Act in accordance with the terms of such loans. § 1786.163 Existing wholesale power contracts. (a) If the borrower is a party to a wholesale power contract with a power supply borrower financed pursuant to the RE Act, the Administrator may require that the borrower and the power supply borrower enter into a supplement to the outstanding wholesale power contract providing substantially as follows: Sample Contract Terms So long as any of the notes evidencing secured loans of the power supply borrower are outstanding, the borrower will not, without the approval in writing of the power supply borrower and the Administrator, take or suffer to be taken any steps for reorganization or dissolution, or to consolidate with or merge into any corporation, or to sell, lease or transfer (or make any agreement therefor) all or a substantial portion of its assets, whether now owned or hereafter acquired. The power supply borrower will not unreasonably withhold or condition its consent to any such, reorganization, dissolution, consolidation, or merger, or to any such sale, lease or transfer (or any agreement therefor) of assets. The power supply borrower will not withhold or condition such consent except in cases where to do otherwise would result in rate increases for the other members of the power supply borrower or impair the ability of the power supply borrower to repay its secured loans in accordance with their terms, or adversely affect system performance in a material way. Notwithstanding the foregoing, the borrower may take or suffer to be taken any steps for reorganization or dissolution or to consolidate with or merge into any corporation or to sell, lease or transfer (or make any agreement therefor) all or a substantial portion of its assets, whether now owned or hereafter acquired without the power supply borrower's consent, so long as the borrower shall pay such portion of the outstanding indebtedness on the power supply borrower's notes or other obligations as shall be determined by the power supply borrower with the prior written consent of the Administrator and shall otherwise comply with such reasonable terms and conditions as the Administrator and power supply borrower may require either: (1) To eliminate any adverse effect that such action seems likely to have on the rates of the other members of the power supply borrower, or (2) To assure that the power supply borrower's ability to repay the secured loans and other obligations of the power supply borrower in accordance with their terms is not impaired. The Administrator may require, among other things, that any payment owed under (2) of the preceding sentence that represents a portion of the power supply borrower's indebtedness on Notes shall be paid by the borrower in the manner necessary to accomplish a defeasance of those obligations in accordance with the loan documents relating thereto, or be paid directly to the holders of the Notes for application by them as prepayments in accordance with the provisions of such documents, or be paid to the power supply borrower and held and invested in a manner satisfactory to the Administrator. [End of sample contract terms] (b) The Administrator may exempt a borrower from the requirement to enter into a supplement to its outstanding wholesale power contract if the Administrator determines that such requirement is burdensome and unnecessary in light of the provisions of the existing wholesale power contract, other security arrangements of the power supply borrower, and any other relevant facts and circumstances. Normally such exemption will be granted only with the concurrence of the power supply borrower. § 1786.164 Loan fund audit. In the event that a borrower shall prepay all its outstanding electric loans RUS shall have the right to audit within six (6) months of closing transactions involving the RUS Construction Fund Account established and maintained by the borrower pursuant to the terms of the RUS Loan Contract and to inspect all books, records, accounts, and other documents and papers of the borrower. Should RUS determine that the borrower has made disbursements of funds advanced pursuant to the RUS Loan Contracts which do not comply with the requirements thereof, the borrower shall be required to pay the RUS an amount equal to the difference between the amount which the borrower prepaid under this subpart with respect to such advances, and the amount which the borrower would otherwise have been required to return to the RUS as a result of noncompliance if the borrower had not prepaid such advances, plus interest. (See 7 CFR part 1721, Post-Loan Policies and Procedures for Insured Electric Loans.) § 1786.165 Reporting. Borrowers that no longer have any loans made or guaranteed by RUS and are considering applying for other financial assistance pursuant to the RE Act are encouraged to file the end-of-year operating report, RUS Form 7. § 1786.166 Approvals. The borrower shall be responsible for obtaining all approvals necessary to consummate the transaction as required by the prepayment agreement, including such approvals as may be required by regulatory bodies and other lenders. § 1786.167 Restrictions to additional RUS financing. (a) No borrower that prepays an electric loan at a discount as provided under this subpart may apply for or receive direct or insured loans during the 120 months from the most recent closing date, except at the discretion of the Administrator. During the 120 month period the Administrator may consider providing an insured loan if, among other matters, it is necessary to assure repayment of, or protect the Government's security for any outstanding loans or loan guarantees, or the borrower's system has suffered severe physical plant related damage due to conditions beyond its control and the borrower is unable to obtain financing at reasonable terms to restore the system from non-RUS sources, including the Federal Emergency Management Agency, and from private sources. Upon expiration of the 120 months, such borrowers may apply for direct or insured loans in the same manner as other borrowers provided that such borrowers may not apply for direct or insured loans for facilities, construction of which commenced prior to the expiration of the 120 months. Special provisions for mergers involving a borrower that has prepaid pursuant to this subpart are in 7 CFR 1717.158. (b) Borrowers that prepay their direct or insured RUS loans under this subpart remain eligible for certain types of financial assistance under the RE Act, including loan guarantees and rural development loans. [59 FR 13620, Mar. 22, 1994, as amended at 61 FR 66874, Dec. 19, 1996] § 1786.168 Borrowers who prepaid under this part prior to October 21, 1992. (a) A borrower that had prepaid, prior to the date of enactment of Public Law 102-428 (106 Stat. 2183) on October 21, 1992, at a discount rate as provided at 7 CFR part 1786, subpart C: (1) Shall not be eligible except at the discretion of the Administrator as stated in paragraph § 1786.167(a), to apply for or receive direct or insured loans during the 180-month period beginning on the date of the prepayment; and (2) Shall not be eligible to apply for or receive direct or insured loans from RUS until the borrower has repaid to the RUS the sum of: (i) The amount (if any) by which the discount the borrower received by reason of the prepayment exceeds the discount the borrower would have received had the discount been based on the cost of funds to the Department of the Treasury as calculated at § 1786.153 at the time of the prepayment; and (ii) Interest on the amount described in paragraph (a)(2)(i) of this section for the period beginning on the date of the prepayment and ending on the date of the repayment, at a rate equal to the average annual cost of borrowing by the Department of the Treasury. This rate will be calculated first on the date of prepayment and at one year intervals from that date based on the same U.S. Treasury issues published in the Federal Reserve Statistical Release closest to that date. The Treasury rate of interest to be applied for each year will be the rate for the Treasury issue of comparable maturity to the number of years from the prepayment date to the repayment date and at one year intervals thereafter. (b) If a borrower and the Administrator have entered into an agreement with respect to a prepayment occurring before October 21, 1992, this section shall supersede any provision in the agreement relating to the restoration of eligibility for loans under the RE Act. (c) Borrowers who prepaid prior to October 1, 1987, are eligible for assistance under the RE Act in the same manner as other borrowers with respect to loan guarantees and the rural development loans. (d) During the 180 month period described in paragraph (a)(1) of this section the Administrator may consider providing an insured loan, if the conditions described in § 1786.167(a) exist. (e) Borrowers may not apply for direct or insured loans for facilities, construction of which commenced prior to the expiration of the 180 month period described in paragraph (a)(1) of this section. § 1786.169 Liability. It is the intent of this subpart that any failure on the part of RUS to comply with any provisions of this subpart, including without limitation, those provisions setting forth specified timeframes for action by RUS on applications for prepayments or closing requests, shall not give rise to liability of any kind on the part of the Government or any employees of the Government including, without limitation, liability for damages, fees, expenses or costs incurred by or on behalf of a borrower, private lender or any other party. § 1786.170 Prepayment of loans approved after December 20, 1993. [Reserved] §§ 1786.171-1786.199 [Reserved] Subpart G—Refinancing and Prepayment of RUS Guaranteed FFB Loans Pursuant to Section 306(C) of the RE Act Authority: 7 U.S.C. 901 et seq.; et seq. Source: 58 FR 51008, Sept. 30, 1993, unless otherwise noted. § 1786.200 Purpose. This subpart sets forth the policies and procedures of RUS through the existing FFB program, whereby borrowers may prepay and refinance, outstanding FFB Notes evidencing electric or telephone loans with FFB, pursuant to the provisions of section 306(C) of the RE Act as added by Public Law 103-66, 107 Stat. 312, enacted August 10, 1993. § 1786.201 Definitions and rules of construction. (a) Definitions. Administrator Borrower Business day Electric loan FFB Government Loan guarantee Payment date Prepayment penalty Prepayment premium RE Act et seq. REA Refinancing note RUS RUS loan contract RUS mortgage Supplemental lender Telephone loan (b) Rules of construction. [58 FR 51008, Sept. 30, 1993, as amended at 59 FR 66440, Dec. 27, 1994] § 1786.202 Prepayment and refinancing of RUS guaranteed FFB loans. The borrower of an electric or telephone loan made by the FFB and guaranteed by RUS under section 306 of the RE Act may, at the option of the borrower, refinance or prepay a loan or an advance on the loan, or any portion of the loan or advance in accordance with section 306C of the RE Act, after meeting certain conditions using the procedures prescribed in the note. After refinancing existing notes under this section, additional prepayments or refinancings will be governed by the terms of the refinancing note(s). § 1786.203 Special considerations. Generally all FFB borrowers with loans guaranteed by RUS whose FFB notes have not been accelerated are eligible to prepay or refinance under this part. All requests for prepayment or refinancing will be processed in accordance with this subpart except that some requests for refinancing and prepayments are more complicated and thus will involve special considerations. These requests will have to be handled on a case by case basis and include: (a) Telephone borrowers who are required to meet certain terms of their indenture; (b) Borrowers who have amended their old form note or have already repriced prior to September 30, 1993; (c) Borrowers that have been involved in a merger or consolidation; (d) Borrowers whose obligations to RUS, FFB notes, or security instruments differ from those normally used; (e) A request to prepay or refinance an amount of less than $100,000 or an amount of less than the full amount of an advance outstanding; or (f) A request to prepay or refinance a note that includes unadvanced loan funds. § 1786.204 Limitations. (a) No more than three refinancing notes will be executed for any borrower per calendar year. (b) The borrower may not select a term for the refinanced advance that ends after the maturity date set for that advance. § 1786.205 Application procedure. (a) Any borrower seeking to prepay or refinance an advance from the FFB under this subpart should apply by letter to the appropriate RUS Regional Director or, in the case of power supply borrowers, to the Director of the Power Supply Division. The borrower will be required to submit applications and elections in a digital format to be supplied by RUS. The application letter shall provide the following: (1) Borrower's RUS designation; (2) Borrower's name and address; (3) Listing of each note to be prepaid by loan designation, RUS note number, RUS account number, advance date, maturity date, original amount, outstanding balance, and date(s) of any substitute FFB note(s) amending the original FFB Note; (4) A statement of the borrower's intention to finance the premium by an addition to principal balance or to pay the premium in cash or with unsecured debt; (5) A statement of the maturity options that the borrower wishes to select; (6) Such additional information as the Administrator may request. (b) Requests for refinancing or prepayment will ordinarily be processed in the order that they are received. Borrower's may withdraw an application by notifying the appropriate RUS office in which they filed the application. (c) When the request for prepayment or refinancing is approved for processing the borrower will be provided with appropriate instructions, documents and forms which may include but are not limited to the following: (1) An FFB refinancing note; (2) Resolution of Board of Directors; (3) Legal Opinion; (4) Certificate of Secretary; (5) Waiver of Notice; (6) Notice to borrower electing an effective date other than a scheduled quarterly payment date (if applicable); (7) Documentation of obligations secured pursuant to section 1786.208 if any; and (8) Security instrument. (Approved by the Office of Management and Budget under control number 0572-0032) § 1786.206 Refinancing note. (a) RUS will issue a replacement guaranty for refinancing notes delivered to FFB to replace and substitute for existing FFB notes in connection with any refinancing by FFB pursuant to section 306C of the RE Act. (b) Generally, refinancing notes will, to the extent practicable, consolidate all of a borrower's existing FFB notes which have been guaranteed by RUS and containing terms and conditions as FFB may require and RUS and the borrower may accept. (c) Notwithstanding any contrary provision contained in this subpart, RUS will give preference to processing refinancings that utilize a generic form of refinancing note in the event that FFB prescribes one. [58 FR 51008, Sep. 30, 1993; 58 FR 58729, Nov. 3, 1993] § 1786.207 Prepayment premium. (a) A premium shall be assessed against a borrower that refinances or prepays a loan or loan advance, or any portion of a loan or advance, under this section. RUS will collect the prepayment premium as calculated by FFB. FFB will calculate this premium as described in this section. Except as provided in paragraph (b) of this section, the premium shall be equal to the lesser of: (1) The difference between the outstanding principal balance of the loan being refinanced and the present value of the loan discounted at a rate equal to the then current cost of funds to the Department of the Treasury for obligations of comparable maturity to the loan being refinanced or prepaid; (2) 100 percent of the amount of interest for 1 year on the outstanding principal balance of the loan or loan advance, or any portion of the loan or advance, being refinanced, multiplied by the ratio that: (i) The number of quarterly payment dates between the date of the refinancing or prepayment and the maturity date for the loan advance; bears to (ii) The number of quarterly payment dates between the first quarterly payment date that occurs 12 years after the end of the year in which the amount being refinanced was advanced and the maturity date of the loan advance; and (3)(i) The present value of 100 percent of the amount of interest for 1 year on the outstanding principal balance of the loan or loan advance, or any portion of the loan or advance, being refinanced or prepaid; plus (ii) For the interval between the date of the refinancing or prepayment and the first quarterly payment date that occurs 12 years after the end of the year in which the amount being refinanced or prepaid was advanced, the present value of the difference between: (A) Each payment scheduled for the interval on the loan amount being refinanced or prepaid; and (B) The payment amounts that would be required during the interval on the amounts being refinanced or prepaid if the interest rate on the loan were equal to the then current cost of funds to the Department of the Treasury for obligations of comparable maturity to the loan being refinanced or prepaid. (b)(1) Except as provided in paragraph (b)(2) of this section, the premium provided by paragraph (a)(1) of this section shall be required for refinancing or prepayment under this section. (2) In the case of a loan advanced under an agreement that permits the refinancing or prepayment of the loan advance based on the payment of 1 year of interest on the outstanding principal balance of the loan advance, a borrower may, in lieu of the premium required by paragraph (a)(1) of this section, pay a premium as provided by: (i) Paragraph (a)(2) of this section, if the loan advance has reached the 12-year maturity required under the loan agreement for the refinancing or prepayment; or (ii) Paragraph (a)(3) of this section, if the loan advance has not reached the 12-year maturity required under the loan agreement for the refinancing or prepayment. § 1786.208 Increased principal. A borrower can meet the premium requirements by increasing the outstanding principal balance of the loan advance that is being refinanced. If it does so the borrower shall make a payment at the time of the refinancing equal to 2.5 percent of the amount of the premium that is added to the outstanding principal balance of the loan. § 1786.209 Outstanding loan documents. (a) Except as expressly provided in this subpart, the borrower shall comply with all provisions of its RUS loan contract, its outstanding notes issued to RUS, and the RUS mortgage. (b) Nothing in this subpart shall affect any rights of supplemental lenders under the RUS mortgage or the rights of any other creditors of the borrower. (c) Nothing in this subpart shall prohibit a borrower from making prepayments on any loans pursuant to the RE Act in accordance with the terms thereof or as may be otherwise permitted by law. § 1786.210 Approvals. The borrower shall be responsible for obtaining all approvals necessary to consummate the transaction as required by the refinancing note, including such approvals as may be required by regulatory bodies and other lenders.

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