OneRD Guaranteed Loan Regulation
| Citation | 85 FR 42494 |
| Record Number | 2020-13991 |
| Published date | 14 July 2020 |
| Section | Rules and Regulations |
| Court | Rural Housing Service,Rural Utilities Service |
Federal Register, Volume 85 Issue 135 (Tuesday, July 14, 2020)
[Federal Register Volume 85, Number 135 (Tuesday, July 14, 2020)]
[Rules and Regulations]
[Pages 42494-42580]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13991]
[[Page 42493]]
Vol. 85
Tuesday,
No. 135
July 14, 2020
Part IIDepartment of Agriculture----------------------------------------------------------------------- Rural Utilities Service Rural Housing Service Rural Business-Cooperative Service-----------------------------------------------------------------------7 CFR Parts 1779, 3575, et al.OneRD Guaranteed Loan Regulation; Final Rule
Federal Register / Vol. 85, No. 135 / Tuesday, July 14, 2020 / Rules
and Regulations
[[Page 42494]]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
Rural Utilities Service
Rural Housing Service
Rural Business-Cooperative Service
7 CFR Parts 1779, 3575, 4279, 4287, and 5001
[Docket No. RUS-19-Agency-0030]
RIN 0572-AC43
OneRD Guaranteed Loan Regulation
AGENCY: Rural Business-Cooperative Service, Rural Housing Service,
Rural Utilities Service, USDA.
ACTION: Final rule; request for comments.
-----------------------------------------------------------------------
SUMMARY: The Rural Business-Cooperative Service, Rural Housing Service,
and the Rural Utilities Service, agencies of the Rural Development
mission area within the U.S. Department of Agriculture (USDA),
hereinafter collectively referred to as the Agency, are proposing a
unified guaranteed loan platform for enhanced delivery of four of its
existing guaranteed loan programs: Community Facilities (CF)
administered by the Rural Housing Service; Water and Waste Disposal
(WWD) administered by the Rural Utilities Service; and, Business and
Industry (B&I) and Rural Energy for America (REAP) administered by the
Rural Business-Cooperative Service. Collectively, these four Rural
Development's guaranteed loan programs work to assist in building and
maintaining sustainable rural communities. This rule incorporates new
and revised provisions intended to simplify, improve, expand and
enhance the delivery of the four guaranteed loan programs. These
provisions include, among others, clearly defining specific project
eligibility criteria, revising the requirements for lenders to
participate in the programs, and streamlining the documentation
requirements for submission of guaranteed loan applications.
DATES:
Effective date: This final rule is effective October 1, 2020.
Comment date: Comments are due September 14, 2020.
ADDRESSES: You may submit comments, identified by docket number RUS-19-
Agency-0030 and Regulatory Information Number (RIN) number 0572-AC43
through https://www.regulations.gov.
Instructions: All submissions received must include the Agency name
and docket number or RIN for this rulemaking. All comments received
will be posted without change to https://www.regulations.gov, including
any personal information provided.
Docket: For access to the docket to read background documents or
comments received, go to https://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Thomas P. Dickson, Regulations
Management Division Team 2, Rural Development Innovation Center, U.S.
Department of Agriculture, 1400 Independence Ave. SW, Stop 1522,
Washington, DC 20250; telephone 202-690-4492; email
[email protected].
SUPPLEMENTARY INFORMATION:
Table of Contents for Preamble
I. Abbreviations
II. Background
A. Rural Development's Mission.
B. Composition of the OneRD Guaranteed Loan Program
1. Community Facilities Guaranteed Loan Program
2. Water and Waste Disposal Guaranteed Loan Program
3. Business and Industry Guaranteed Loan Program
4. Rural Energy for America Program
5. Similarities Between the Four Guaranteed Loan Programs
III. Basis and Purpose
IV. Discussion of the Rule
A. Organization of the Rule
B. Delivery of the OneRD Guaranteed Loan Program
C. Changes of Note
V. Public Participation and Discussion of Comments From Listening
Sessions
VI. Regulatory Impact Analyses
A. Executive Orders 12866 and 113563
B. Unfunded Mandates Reform Act
C. Environmental Impact Statement
D. Executive Order 12988, Civil Justice Reform
E. Executive Order 13132, Federalism
F. Regulatory Flexibility Act Certification
G. Executive Order 12372, Intergovernmental Consultation
H. Executive Order 13175, Consultation and Coordination With
Indian Tribal Governments
I. Programs Affected
J. Catalog of Federal Domestic Assistance
K. Paperwork Reduction Act and Recordkeeping Requirements
L. E-Government Act Compliance
M. Civil Rights Impact Analysis
I. Abbreviations
CDE Community Development Entity
CFDA Catalog of Federal Domestic Assistance
CFR Code of Federal Regulations
CONAct Consolidated Farm and Rural Development Act
FCRA Federal Credit Reform Act of 1990
FDIC Federal Deposit Insurance Corporation
FIRREA Financial Institutions Reform, Recovery and Enforcement Act
of 1989
FR Federal Register
FSRIA Farm Security and Rural Investment Act of 2002
GAAP Generally accepted accounting principles
GPO Government Printing Office
ICBA Independent Community Bankers of America
LNG Loan Note Guarantee
NEPA National Environmental Policy Act
NMTC New Markets Tax Credit
OGC Office of General Counsel
OMB Office of Management and Budget
OneRD OneRD Guaranteed Loan Program
PER Preliminary Engineering Reports
QALICB Qualified Active Low Income Community Business
RD Rural Development
REAP Rural Energy for America Program
RFA Regulatory Flexibility Act
RMA Risk Management Association
SAM System for Award Management
Sec. Section
TBSE Tangible Balance Sheet Equity
UMRA Unfunded Mandates Reform Act 1995
U.S.C. United States Code
USDA U.S. Department of Agriculture
USPAP Uniform Standards of Professional Appraisal Practice
II. Background
Through this regulation, Rural Development (RD) is consolidating
and standardizing the rules associated with making and servicing of
four guaranteed loan programs. The new regulation eliminates existing
regulations in six areas: 7 CFR part 3575, subpart A which is the
existing regulation for making and servicing Community Facilities (CF)
guaranteed loans; 7 CFR part 1779 which is the existing regulation for
making and servicing Water and Waste Disposal (WWD) guaranteed loans; 7
CFR part 4279, subparts A and B which are the existing regulations for
making Business and Industry (B&I) guarantee loans; 7 CFR part 4280,
subpart B which is the existing regulation for making Rural Energy for
America (REAP) guarantee loans; and, 7 CFR 4287 subpart B which is the
existing regulation for servicing B&I and REAP guarantee loans. This
regulation replaces those removed sections with the OneRD guarantee
loan regulation (``OneRD''), a unified regulation for making and
servicing the four guaranteed loan programs, codified at 7 CFR 5001. To
ensure that the drafting of OneRD was a customer-centric process, the
Agency invited public input through six listening sessions and a Human
Experience Lab. The public participation provided input on ways to
simplify, improve, enhance and expand the delivery of the four
guarantee programs. Through this process, the Agency identified eight
broad areas of
[[Page 42495]]
improvement on which to focus its efforts: Community impact; Agency
staff training and empowerment; enabling technology; USDA-lender
relationship; simplicity and consistency; speed of approval process;
communication and transparency; and marketing and outreach. Comments
and Agency responses to comments received are provided in section V.
Public Participation and Discussion of Comments from Listening
Sessions.
A. Rural Development's Mission
By statutory authority, Rural Development is an advocate for rural
America, administering a multitude of programs, ranging from housing
and community facilities to infrastructure and business development.
The Agency's mission is to increase economic opportunity and improve
the quality of life in rural communities by providing the leadership,
infrastructure, capital, and technical support that enables rural
communities to prosper.
To achieve its mission, the Agency provides financial support,
including loan guarantees, direct loans and grants, and technical
assistance to enhance the quality of life and provide the foundation
for economic development in rural areas. This final rule with comment
addresses the use of a unified guaranteed loan regulation for four
programs to support Rural Development's mission. The regulation
implements changes to current guarantee practices to make the processes
and procedures consistent across the four programs. As a loan-making
agency, Rural Development is exempt from prior notice and comment (5
U.S.C. 553(a)(2)) to implement policies and procedures governing loan
programs. Nevertheless, we are providing the public the opportunity to
comment on the requirements found in this Final Rule. During the
comment period, the Agency will host listening sessions and the
schedule will be available on the website. Comments received will be
considered and addressed in a future rulemaking.
B. Composition of the OneRD Guaranteed Loan Program
This section briefly describes the scope of each of the four
individual programs with regard to eligible projects, borrowers, and
lenders, application processes, guarantee and loan terms, and how the
four programs are combined into a unified guaranteed loan platform.
(1) Community Facilities Guaranteed Loan Program. The CF guaranteed
loan program guarantees loans to develop essential community facilities
in rural areas and towns with a population of up to 50,000, depending
on the level of appropriated funding for a respective fiscal year. Loan
funds may be used to construct, enlarge, extend or otherwise improve
essential community facilities including health care, public safety,
and public services. Eligible borrowers include public entities, such
as municipalities, counties, special-purpose districts, Indian tribes,
and not-for-profit corporations who are unable to obtain commercial
credit at reasonable rates and terms without the Federal Government's
guarantee.
(2) Water and Waste Disposal Guaranteed Loan Program. The Water and
Waste Disposal Guaranteed Loan program guarantees loans to construct,
enlarge, extend or otherwise improve water and waste disposal systems,
including wastewater treatment, solid waste disposal, and storm
drainage, in rural areas and in cities and towns with a population of
up to 50,000. Eligible borrowers include public entities, such as
municipalities, counties, special-purpose districts, and Indian tribes,
as well as not-for-profit corporations and tribal governments who are
unable to obtain commercial credit at reasonable rates and terms
without the Federal Government's guarantee.
(3) Business and Industry Guaranteed Loan Program. The B&I
Guaranteed Loan program guarantees loans that further job creation and
stimulate rural economies by providing financial backing for rural
businesses. Eligible borrowers include cooperatives, corporations,
partnerships, trusts or other profit or not-for-profit entities, Indian
tribes, municipalities, counties, or other political subdivisions of a
state.
(4) Rural Energy for America Program. The Rural Energy for America
Program is a guaranteed loan program, providing loan guarantees for the
purchase and installation of renewable energy systems, energy
efficiency improvements and energy efficient equipment. Eligible
borrowers include farmers, ranchers, and rural small businesses.
(5) Similarities Between the Four Guaranteed Loan Programs. While
each program has some different requirements based on statutory
authorizations (e.g., borrower and project eligibility, necessary
documentation, and funding limits), the same basic framework for making
loan guarantees applies to each of the programs.
In accordance with rural area definition and reservation
requirements found at 7 U.S.C. 1991(a) and 7 U.S.C. 1926(a)(24),
projects must be located in any area of a state not in a city or town
that has a population of more than 50,000 inhabitants, according to the
latest decennial census of the United States and not in the urbanized
area contiguous and adjacent to a city or town that has a population of
more than 50,000 inhabitants.
Lenders requesting loan guarantees from the Agency under
OneRD must meet the definition of either a regulated lending entity or
a non-regulated lending entity as specified in Sec. 5001.130.
A borrower works with a lender to obtain a loan for a
project eligible under one or more of the four programs, providing the
lender with necessary information on the borrower and the project.
A lender evaluates borrower and project eligibility and
performs a detailed credit evaluation and, as applicable, an economic
or financial analysis of the project to ensure that the borrower will
be able to repay the loan.
A lender applies to the Agency for a loan guarantee and
submits the credit evaluation for the project and borrower, and all
required application documentation.
The Agency reviews each guaranteed loan application
package in accordance with the OneRD program requirements and approves
or denies the guarantee. Subject to the availability of funds, each
approved package is provided a conditional commitment for a loan
guarantee.
Each lender is responsible for the origination and
servicing of its guaranteed loan portfolio and for working with the
Agency, as necessary, to resolve borrower issues (such as default).
Using this framework allows the Agency to support rural economic
development effectively and efficiently through loan guarantees and
combines the four programs into one unified guaranteed loan program in
OneRD.
III. Basis and Purpose
As noted earlier, prior to implementation of this final rule, the
four guaranteed loan programs origination and servicing processes
appeared in separate regulations and required users to become familiar
with the individual provisions. The four loan programs share many
common elements and the Agency has reviewed opportunities to increase
commonalities among processes to improve efficiency and customer
experience while maintaining the distinct purposes of the authorized
programs.
The four guaranteed loan programs and their respective regulations
combined under this final rule
[[Page 42496]]
developed over time and, in some respects, independently of each other.
A review of these programs and their regulations, individually and
collectively, has identified four key operational issues that this
final rule aims to resolve. These issues and the OneRD regulation's
approach related to them are as follows:
Increased Efficiency: Many lenders and, in some cases, borrowers,
seek loan guarantees under more than one of the four RD loan guarantee
programs, for example, a small town builds a senior day center with a
CF loan guarantee, and then adds solar panels through a REAP loan
guarantee. Therefore, under the current conditions, they are required
to learn multiple, similarly regulated, but differently operated, loan
guarantee programs. For lenders, the benefit of using a program must be
worth the cost of investing in learning and adapting to its rules, thus
if the bulk of a lender's business is in one program, any differences
may disincentivize, through decreased efficiency and increased costs,
the use of the other programs should the opportunity arise.
Under this final rule, the Agency expects that lenders (and to a
lesser extent borrowers) will find all four loan guarantee programs
easier and more efficient to use because (1) a single set of forms and
application process is used for the four programs being consolidated,
(2) the common elements for origination, processing, and servicing have
been consolidated into a single part of this final rule, and (3) this
final rule relies more on common lending practices, which may reduce
the lender's and borrower's costs. Consolidating requirements is
expected to reduce burden for lenders, borrowers, and the Agency's
staff, easing delivery and increasing efficiency. Additionally, those
borrowers who may only utilize one of the guaranteed programs will
benefit when the Agency is better able to leverage scarce IT resources
for improvements to the application system.
Overall, a common platform like the OneRD regulation is expected to
be easier to administer, improve consistency and thus customer
experience, and reduce Agency and lender risk. Internally, OneRD will
reduce the time, effort, and training necessary to guarantee a loan,
especially through efficiencies realized through common forms, rules,
and information technology platforms. With OneRD, internal management
controls will improve through standardized servicing and oversight.
Common elements assist lenders in managing a diverse portfolio while
meeting Federal requirements. Uniform processes facilitate electronic
commerce between the Agency and its customers.
Improved Flexibility: Maintaining separate sets of basic
requirements for different loan guarantee programs creates
inflexibilities, including the burden of ensuring new crosscutting
requirements are incorporated into separate regulations or
incorporating new efficiencies where they apply. Additionally, the
single regulation allows for the addition of other loan guarantee
programs without having to build a completely new structure and instead
only incorporating any unique factors into the existing OneRD
regulation. General provisions, which apply to all guaranteed loan
programs, are contained in subpart A of the final rule and additional
guaranteed loan programs can be added as needed in the remaining or new
subparts. Additionally, each of the four subparts corresponding to the
four programs includes an introductory section describing requirements
that apply to the specific program.
Efficient use of Agency Resources: Previously, the separate
programs did not encourage a streamlined and cross-program use of
Agency resources. For programs that issued fewer guarantees, staff
might lack familiarity with the applicable regulations and commercial
lender practices and standards, creating inconsistencies in delivery as
the program was relearned for each loan. For programs that issued many
guarantees, staff might experience significant workloads that could be
alleviated by cross-trained colleagues. The Agency has worked to make
consistent its approach to evaluating risk relative to the program,
industry, and conditions applicable to the loan guarantee. This final
rule allows the Agency to more effectively utilize its resources via
implementation of a OneRD model, which emphasizes consistency, reliance
on lender expertise, refocusing time spent on loan processing to time
spent servicing clients, and increasing access to its programs by
eliminating regulatory redundancy.
Improved Risk Management: In developing a portfolio of loan
guarantees, consideration must be given to credit risk management. The
``5 Cs of Credit'': character; capacity; capital; collateral; and,
conditions are industry recognized credit evaluation standards. OneRD
emphasizes that the lender's credit evaluation relies on the
professional judgement of the lender and their review of the credit
factors in determining risk. These credit factors, while implied in the
existing regulations are now defined and specific Agency standards are
provided at Sec. 5001.202(a) and (b). Providing a single set of credit
evaluation factors with defined meanings improves consistency in Agency
reviews which improves response and delivery times.
In addition to credit risk management, institutional risk
management has been addressed and codified. Institutional risk, in this
regulation, refers to the quality of the lender seeking the loan
guarantee. Currently, each program area has its own set of criteria
that lending entities must meet to be determined eligible. A lending
entity can be eligible under one program but not another which creates
confusion and inefficiencies for all parties. By implementing one
defined, comprehensive set of criteria across all four programs to
assess lender performance, the unified guaranteed loan platform allows
the Agency to improve its management of lenders participating in these
programs and provide a one-stop shop for lenders. With this final rule,
the Agency implements lender eligibility criteria based on the status,
regulated or non-regulated, of the lending entity. These criteria are
in 7 CFR 5001.130 through 5001.132, which discuss lender eligibility
requirements, the lender's agreement, and maintenance of approved
lender status.
Agency operational risk refers to internal weaknesses that can
occur in administering separate guaranteed loan programs using a
variety of regulations that require unique sets of processes and
procedures. OneRD uses commonalities, consistency in regulatory
language, and integration of information management systems to reduce
Agency operational risk. The use of electronic reporting and
standardized forms also allows the Agency to manage its portfolio of
outstanding guaranteed loans better.
Ultimately, the OneRD guarantee loan regulation provides a
framework to ensure consistent implementation of the four guaranteed
loan programs and full utilization of all four guarantee programs for
the benefit of rural communities.
IV. Discussion of the Rule
A. Organization of the Rule
To help the public locate existing regulatory provisions found in
the new rule, the Agency provides the following table showing new
sections and subparts under the OneRD Guaranteed Loan program and where
the information and requirements were previously located.
[[Page 42497]]
Table 1--OneRD Guaranteed Loan Program CFR Sections and Subparts
------------------------------------------------------------------------
OneRD section No. and title Current section Nos. and titles
------------------------------------------------------------------------
Subpart A--General Provisions
------------------------------------------------------------------------
Sec. 5001.1 General.
Sec. 5001.2 Structure of Regulation.
Sec. 5001.3 Definitions.............. B&I: Sec. 4279.2 Definitions
and abbreviations.
REAP: Sec. 4280.103
Definitions.
CF: Sec. 3575.2 Definitions.
WWD: Sec. 1779.2 Definitions.
Sec. 5001.4 Exception authority...... B&I: Sec. 4279.15 Exception
authority.
REAP: Sec. 4280.104 Exception
authority.
CF: Sec. 3575.17 Exception
authority.
WWD: Sec. 1779.17 Exception
authority.
Sec. 5001.5 Appeal and review rights. B&I: Sec. 4279.16 Appeals.
REAP: Sec. 4280.105 Review or
appeal rights.
CF: Sec. 3575.13 Appeals.
WWD: Sec. 1779.13 Appeals.
Sec. 5001.6 General Lender B&I: Sec. 4279.30 Lenders'
responsibilities. functions and
responsibilities.
Sec. 5001.7 Agency special
initiatives.
Sec. 5001.8 Approvals, regulations, B&I: Sec. 4279.1
and forms. Introduction.
REAP: Sec. 4280.107 Statute
and regulation references.
CF: Sec. 3570.257 Statute and
regulation references.
Sec. 5001.9 Standards for Financial B&I: Sec. 4279.137 Financial
information. statements.
REAP: Sec. 4280.132 Financial
statements.
------------------------------------------------------------------------
Subpart B--Eligibility Provisions
------------------------------------------------------------------------
Sec. 5001.101 Introduction.
Sec. 5001.102 Project eligibility-- B&I: Sec. 4279.113 Eligible
general. uses of funds.
REAP: Sec. 4280.113 Project
eligibility.
CF: Sec. 3575.20 Eligibility.
WWD: Sec. 1779.20
Eligibility.
Sec. 5001.103 Eligible Community CF: Sec. 3575.24 Eligible
Facility (CF) Projects and loan purposes; Sec. 3575.20
requirements. Eligibility.
Sec. 5001.104 Eligible Water and WWD: Sec. 1779.24 Eligible
Waste Disposal (WWD) Projects and loan purposes; Sec. 1779.20
requirements. Eligibility.
Sec. 5001.105 Eligible Business and B&I: Sec. 4279.113 Eligible
Industry (B&I) Projects and uses of funds.
requirements.
Sec. 5001.106 Eligible Rural Energy REAP: Sec. 4280.128 Project
for America Program (REAP)--Renewable eligibility.
Energy System (RES) Projects and
requirements.
Sec. 5001.107 Eligible Rural Energy REAP: Sec. 4280.128 Project
for America Program (REAP)--Energy eligibility.
Efficiency Improvement (EEI) Projects
and requirements.
Sec. 5001.108 Rural Energy for
America Program (REAP)--Energy
Efficient Equipment and Systems (EEE)
Projects and requirements.
Sec. 5001.115 Ineligible Projects B&I: Sec. 4279.117 Ineligible
General. purposes and entity types.
CF: Sec. 3575.25 Ineligible
loan purposes.
WWD: Sec. 1779.25 Ineligible
loan purposes.
Sec. 5001.116 Ineligible CF Projects. CF: Sec. 3575.25 Ineligible
loan purposes.
Sec. 5001.117 Ineligible WWD Projects WWD: Sec. 1779.25 Ineligible
loan purpose.
Sec. 5001.118 Ineligible B&I Projects B&I: Sec. 4279.117 Ineligible
purposes and entity types.
Sec. 5001.119 Ineligible REAP
Projects.
Sec. 5001.121 Eligible uses of loan B&I: Sec. 4279.113 Eligible
funds. uses of funds.
REAP: Sec. 4280.114 RES and
EEI grant funding.
CF: Sec. 3575.24 Eligible
loan purposes.
WWD: Sec. 1779.24 Eligible
loan purposes.
Sec. 5001.122 Ineligible uses of loan B&I: Sec. 4279.210 Project
funds. eligibility requirements; Sec.
4279.117 Ineligible purposes
and entity types.
REAP: Sec. 4280.114 RES and
EEI grant funding.
CF: Sec. 3575.24 Eligible
loan purposes; Sec. 3575.25
Ineligible loan purposes.
WWD: Sec. 1779.25 Ineligible
loan purposes.
Sec. 5001.126 Borrower eligibility... B&I: Sec. 4279.108 Eligible
borrowers.
REAP: Sec. 4280.127 Borrower
eligibility.
CF: Sec. 3575.20 Eligibility.
WWD: Sec. 1779.20
Eligibility.
Sec. 5001.127 Borrower ineligibility B&I: Sec. 4279.117 Ineligible
conditions. purposes and entity types.
REAP: Sec. 4280.109
Ineligible Applicants,
borrowers, and owners.
Sec. 5001.130 Lender eligibility B&I: Sec. 4279.29 Eligible
requirements. lenders.
REAP: Sec. 4280.125(b).
CF: Sec. 3575.27 Eligible
lenders.
WWD: Sec. 1779.27 Lenders.
[[Page 42498]]
Sec. 5001.131 Lender's Agreement..... B&I: Sec. 4279.29 Eligible
lenders.
REAP:.
CF: Sec. 3575.64 Issuance of
Lender's Agreement, Loan Note
Guarantee, and Assignment
Guarantee Agreement.
WWD: Sec. 1779.64 Issuance of
Lender's Agreement, Loan Note
Guarantee, and Assignment
Guarantee Agreement.
Sec. 5001.132 Maintenance of approved B&I: Sec. 4279.29 Eligible
Lender status. lenders.
Sec. 5001.140 Cooperative Stock/ B&I: Sec. 4279.115
Cooperative equity. Cooperative stock/cooperative
equity.
Sec. 5001.141 New Markets Tax Credit. B&I: Sec. 4279.116 New
Markets Tax Credit program.
------------------------------------------------------------------------
Subpart C--Origination Provisions
------------------------------------------------------------------------
Sec. 5001.201 General origination B&I: Sec. 4279.30 Lenders'
requirements. functions and
responsibilities.
Sec. 5001.202 Evaluation of Credit B&I: Sec. 4279.30 Lenders'
Underwriting. functions and
responsibilities; Sec.
4279.131 Credit quality.
REAP: Sec. 4280.131 Credit
quality.
WWD: Sec. 1779.47 and Sec.
1779.48 Collateral.
Sec. 5001.203 Appraisals............. B&I: Sec. 4279.144
Appraisals.
REAP: Sec. 4279.144
Appraisals.
Sec. 5001.204 Personal, partnership, B&I: Sec. 4279.132 Personal
and corporate guarantees. and corporate guarantees.
REAP: Sec. 4280.134 Personal
and corporate guarantees.
Sec. 5001.205 General monitoring B&I: Sec. 4279.167 Planning
requirements. and performing development.
REAP: Sec. 4279.167 Planning
and performing development.
CF: Sec. 3575.42 Design and
construction requirements;
Sec. 3575.12 Inspections;
Sec. 3575.63 Conditions
precedent to issuance of the
Loan Note Guarantee.
WWD: Sec. 1779.12
Inspections; Sec. 1779.42
Design and construction
requirements.
Sec. 5001.206 Compliance with USDA B&I: Sec. 4279.167 Planning
Departmental Regulations, Policies, and performing development.
and other Federal laws. REAP: Sec. 4280.36 Other laws
that contain compliance
requirements for these
Programs; Sec. 4280.36 Other
laws that contain compliance
requirements for these
Programs.
CF: Sec. 3575.42 Design and
construction requirements.
WWD: Sec. 1779.42 Design and
construction requirements.
Sec. 5001.207 Environmental B&I: Sec. 4279.59
responsibilities. Environmental requirements;
Sec. 4279.167 Planning and
performing development.
REAP: Sec. 4280.36 Other laws
that contain compliance
requirements for these
Programs.; Sec. 4280.41
Environmental review of the
application.; Sec. 4280.124
Construction planning and
performing development.
CF: Sec. 3575.9 Environmental
review requirements.
WWD: Sec. 1779.9
Environmental review
requirements.
Sec. 5001.208 Conflicts of Interest.. REAP: Sec. 4280.106 Conflict
of interest.
CF: Sec. 3575.27 Eligible
lenders.
WWD: Sec. 1779.27 Lenders.
------------------------------------------------------------------------
Subpart D--Guarantee Application Provisions
------------------------------------------------------------------------
Sec. 5001.301 Beginning the
application process.
Sec. 5001.302 Preliminary eligibility B&I: Sec. 4279.161 Filing
review. preapplications and
applications.
CF: Sec. 3575.52 Processing.
WWD: Sec. 1779.52 Processing.
Sec. 5001.303 Applications for loan B&I: Sec. 4279.261
guarantee. Application for loan guarantee
content.
CF: Sec. 3575.52(b)
Applications.
WWD: Sec. 1779.52(b)
Applications.
Sec. 5001.304 Specific Application CF: Sec. 3575.47 Economic
Requirements for Community Facility feasibility requirements.
Projects.
Sec. 5001.305 Specific Application WWD: Sec. 1779.42 Design and
Requirements for Water and Waste construction requirements;
Disposal Projects. Sec. 1779.47 Economic
feasibility requirements.
Sec. 5001.306 Specific Application B&I: Sec. 4279.161 Filing
Requirements for Business and Industry preapplications and
Projects. applications.
Sec. 5001.307 Specific Application REAP: Sec. 4280.137
Requirements for Rural Energy for Application and documentation.
America Program Projects.
Sec. 5001.315 Application evaluation B&I: Sec. 4279.260 Guarantee
and award provisions. applications--general.
REAP: Sec. 4280.110 General
Applicant, application, and
funding provisions.
CF: Sec. 3575.53 Evaluation
of application.
WWD: Sec. 1779.53 Evaluation
of application.
Sec. 5001.316 Community Facility CF: Sec. 3575.53 Evaluation
Project priority point system and of application.
reservation of funds.
Sec. 5001.317 Water and Waste
Disposal Project priority points
system.
Sec. 5001.318 Business and Industry B&I: Sec. 4279.166 Loan
Project priority points system. priority scoring.
[[Page 42499]]
Sec. 5001.319 Rural Energy for REAP: Sec. 4280.135 Scoring
America Program Project priority RES and EEI Guaranteed Loan-
points system. only applications.
------------------------------------------------------------------------
Subpart E--Loan and Guarantee Provisions
------------------------------------------------------------------------
Loan Provisions
------------------------------------------------------------------------
Sec. 5001.401 Interest rate B&I and REAP: Sec. 4279.125
provisions. Interest rates; Sec.
4279.233 Interest rates.
CF: Sec. 3575.33 Interest
rates.
WWD: Sec. 1779.33 Interest
rates.
Sec. 5001.402 Term length, loan B&I and REAP: Sec. 4279.126
schedule, repayment. Loan terms.
CF: Sec. 3575.34 Terms of
loan repayment.
WWD: Sec. 1779.34 Terms of
loan repayment.
Sec. 5001.403 Lender fees............ B&I: Sec. 4279.120 Fees and
charges; Sec. 4279.231 Fees.
REAP: Sec. 4280.129
Guaranteed loan funding.
CF: Sec. 3575.29 Fees and
charges by lender.
WWD: Sec. 1779.29 Fees and
charges by lender.
Sec. 5001.406 Loan amounts........... B&I: Sec. 4279.119 Loan
guarantee limits.
REAP: Sec. 4280.129
Guaranteed loan funding.
Sec. 5001.407 Percent of guarantee... B&I: Sec. 4279.119 Loan
guarantee limits.
REAP: Sec. 4280.129
Guaranteed loan funding.
CF: Sec. 3575.30 Loan
guarantee limitations.
WWD: Sec. 1779.30 Loan
guarantee limitations.
Sec. 5001.408 Sale or assignment of B&I: Sec. 4279.75 Sale or
Guaranteed Loan. assignment of guaranteed loan;
Sec. 4279.223 Sale or
assignment of guaranteed loan.
CF: Sec. 3575.65 Lender's
sale or assignment of the
guaranteed portion of loan.
WWD: Sec. 1779.65 Lender's
sale or assignment of the
guaranteed portion of loan.
------------------------------------------------------------------------
Guarantee Provisions
------------------------------------------------------------------------
Sec. 5001.450 General................ B&I: Sec. 4279.72 Conditions
of guarantee.
REAP: Sec. 4280.131 Credit
quality.
CF: Sec. 3575.3 Full faith
and credit; Sec. 3575.4
Conditions of guarantee.
WWD: Sec. 1779.3 Full faith
and credit; Sec. 1779.4
Conditions of guarantee.
Sec. 5001.451 Conditional Commitment. B&I: Sec. 4279.173 Loan
Approval and obligating funds.
Sec. 5001.452 Loan closing and B&I: Sec. 4279.181 Conditions
conditions precedent to issuance of precedent to issuance of the
Loan Note Guarantee. Loan Note Guarantee; Sec.
4279.281 Conditions precedent
to issuance of Loan Note
Guarantee.
REAP: Sec. 4280.142
Conditions precedent to
issuance of loan note
guarantee.
CF: Sec. 3575.63 Conditions
precedent to issuance of the
Loan Note Guarantee.
WWD: Sec. 1779.63 Conditions
precedent to issuance of the
Loan Note Guarantee.
Sec. 5001.453 Issuance of the B&I: Sec. 4279.181 Conditions
guarantee. precedent to issuance of the
Loan Note Guarantee; Sec.
4279.281 Conditions precedent
to issuance of Loan Note
Guarantee.
REAP: Sec. 4280.142
Conditions precedent to
issuance of loan note
guarantee.
CF: Sec. 3575.63 Conditions
precedent to issuance of the
Loan Note Guarantee; Sec.
3575.64 Issuance of Lender's
Agreement, Loan Note
Guarantee, and Assignment
Guarantee Agreement.
WWD: Sec. 1779.63 Conditions
precedent to issuance of the
Loan Note Guarantee; Sec.
1779.64 Issuance of Lender's
Agreement, Loan Note
Guarantee, and Assignment
Guarantee Agreement.
Sec. 5001.454 Guarantee fee.......... B&I: Sec. 4279.120 Fees and
charges; Sec. 4279.231 Fees.
REAP: Sec. 4280.126 Guarantee/
annual renewal fee.
CF: Sec. 3575.29 Fees and
charges by lender.
WWD: Sec. 1779.29 Fees and
charges by lender.
Sec. 5001.455 Periodic Guarantee B&I: Sec. 4279.120 Fees and
Retention fee. charges; Sec. 4279.231 Fees.
REAP: Sec. 4280.126 Guarantee/
annual renewal fee.
Sec. 5001.456 Other fees............. B&I: Sec. 4279.120 Fees and
charges.
Sec. 5001.457 Changes prior to loan B&I: Sec. 4279.174 Transfer
closing. of lenders; Sec. 4279.280
Changes in borrower.
REAP: Sec. 4279.174 Transfer
of lenders; Sec. 4279.280
Changes in borrower.
Sec. 5001.458 Other Federal, State, CF: Sec. 3575.43 Other
and local requirements. Federal, State, and local
requirements.
WWD: Sec. 1779.43 Other
Federal, State, and local
requirements.
[[Page 42500]]
Sec. 5001.459 Replacement of Loan B&I: Sec. 4279.84 Replacement
Note Guarantee and Assignment of document; Sec. 4279.226
Guarantee Agreement. Replacement of document; Sec.
4279.84 Replacement of
document; Sec. 4279.226
Replacement of document.
REAP: Sec. 4279.84
Replacement of document; Sec.
4279.226 Replacement of
document; Sec. 4279.84
Replacement of document; Sec.
4279.226 Replacement of
document.
CF: Sec. 3575.73 Replacement
of loss, theft, destruction,
mutilation, or defacement of
Loan Note Guarantee or
Assignment Guarantee
Agreement.
WWD: Sec. 1779.73 Replacement
of loss, theft, destruction,
mutilation, or defacement of
Loan Note Guarantee or
Assignment Guarantee
Agreement.
------------------------------------------------------------------------
Subpart F--Servicing Provisions
------------------------------------------------------------------------
Sec. 5001.501 General................ B&I: Sec. 4287.107 Routine
servicing.
REAP: Sec. 4287.107 Routine
servicing.
CF: Sec. 3575.69 Loan
servicing.
WWD: Sec. 1779.69 Loan
servicing.
Sec. 5001.502 Oversight and B&I: Sec. 4279.217 Oversight
monitoring. and monitoring.
REAP: Sec. 4287.107 Routine
servicing.
Sec. 5001.503 Project completion REAP: Sec. 4280.143
requirements. Requirements after project
construction.
Sec. 5001.504 Financial reports...... B&I and REAP: Sec.
4287.107(d) Borrower financial
reports.
CF: Sec. 3575.69 Loan
servicing.
WWD: Sec. 1779.69 Loan
servicing.
Sec. 5001.505 Collateral inspection B&I: Sec. 4287.113 Release of
and release. Collateral.
REAP: Sec. 4287.113 Release
of Collateral.
CF: Sec. 3575.12 Inspections;
Sec. 3575.69 Loan servicing.
WWD: Sec. 1779.12
Inspections; Sec. 1779.69
Loan servicing.
Sec. 5001.506 Loan transfers and B&I: Sec. 4287.134 Transfer
assumptions. and Assumption.
REAP: Sec. 4287.134 Transfer
and Assumption.
CF: Sec. 3575.88 Transfers
and assumptions.
WWD: Sec. 1779.88 Transfers
and assumptions.
Sec. 5001.507 Lender transfer........ B&I: Sec. 4279.174 Transfer
of lenders; Sec. 4279.279
Transfer of Lenders.
Sec. 5001.508 Mergers................ CF: Sec. 3575.89 Mergers.
WWD: Sec. 1779.89 Mergers.
Sec. 5001.509 Servicing fees......... B&I: Sec. 4279.120 Fees and
charges.
REAP: Sec. 4287.334 Transfer
and Assumption.
Sec. 5001.510 Subordination of lien B&I: Sec. 4287.123
position. Subordination of lien
position.
REAP: Sec. 4287.323
Subordination of lien
position.
Sec. 5001.511 Repurchases from B&I: Sec. 4279.78 Repurchase
Holders. from holder; Sec. 4279.225
Repurchase from Holder.
REAP: Sec. 4279.78 Repurchase
from holder; Sec. 4279.225
Repurchase from Holder.
CF: Sec. 3575.78 Repurchase
of loan.
WWD; Sec. 1779.78 Repurchase
of loan.
Sec. 5001.512 Additional expenditures CF: Sec. 3575.84 Additional
and loans. loans or advances.
WWD: Sec. 1779.84 Additional
loans or advances.
Sec. 5001.513 Interest rate changes.. B&I: Sec. 4287.112 Interest
rate changes.
REAP: Sec. 4287.112 Interest
rate changes.
CF: Sec. 3575.80 Interest
rate changes after loan
closing.
WWD: Sec. 1779.80 Interest
rate changes after loan
closing.
Sec. 5001.514 Lender failure......... B&I: Sec. 4287.136 Lender
failure.
REAP: Sec. 4287.136 Lender
failure.
Sec. 5001.515 Default by Borrower.... B&I: Sec. 4287.145 Default by
Borrower.
REAP: Sec. 4287.145 Default
by borrower.
WWD: Sec. 1779.75 Defaults by
borrower.
Sec. 5001.516 Protective Advances.... B&I: Sec. 4287.156 Protective
Advances.
REAP: Sec. 4287.156
Protective advances.
CF: Sec. 3575.83 Protective
advances.
WWD: Sec. 1779.83 Protective
advances.
Sec. 5001.517 Liquidation............ B&I: Sec. 4287.157
Liquidation.
REAP: Sec. 4287.157
Liquidation.
CF: Sec. 3575.81 Liquidation.
WWD: Sec. 1779.81
Liquidation.
Sec. 5001.519 Bankruptcy............. B&I: Sec. 4287.170
Bankruptcy.
REAP: Sec. 4287.170
Bankruptcy.
CF: Sec. 3575.85 Bankruptcy.
WWD: Sec. 1779.85 Bankruptcy.
Sec. 5001.520 Litigation.
[[Page 42501]]
Sec. 5001.521 Loss calculations and B&I: Sec. 4287.158
payment. Determination of loss and
payment.
REAP: Sec. 4287.158
Determination of loss and
payment.
CF: Sec. 3575.34 Terms of
loan repayment; Sec. 3575.81
Liquidation; Sec. 3575.94
Determination and payment of
loss.
WWD: Sec. 1779.34 Terms of
loan repayment; Sec. 1779.42
Design and construction
requirements; Sec. 1779.81
Liquidation; Sec. 1779.94
Determination and payment of
loss.
Sec. 5001.522 Future recovery........ B&I: Sec. 4287.169 Future
Recovery.
REAP: Sec. 4287.169 Future
Recovery.
CF: Sec. 3575.95 Future
recovery.
WWD: Sec. 1779.95 Future
recovery.
Sec. 5001.523 Property acquired by CF: Sec. 3575.90 Disposition
the Lender. of acquired property.
WWD: Sec. 1779.90 Disposition
of acquired property.
Sec. 5001.524 Termination of Loan B&I: Sec. 4287.180
Note Guarantee. Termination of Guarantee.
REAP: Sec. 4287.180
Termination of Guarantee.
CF: Sec. 3575.96 Termination
of Loan Note Guarantee.
WWD: Sec. 1779.96 Termination
of Loan Note Guarantee.
------------------------------------------------------------------------
As noted in table 1 above, this final rule is divided into six
major subparts:
(1) Subpart A contains general provisions that are applicable to
each guaranteed loan made under 7 CFR part 5001, except as may be
otherwise indicated. Topics covered include definitions; exception
authority; appeal and review rights; general lender responsibilities;
special initiatives; approvals, regulations, and forms; and standards
for financial information.
(2) Subpart B contains provisions for determining project,
borrower, and lender eligibility. It also contains a list of ineligible
projects, both general and program specific, and a set of conditions
that would make an otherwise eligible borrower ineligible. This subpart
addresses the lender's agreement, along with provisions associated with
a lender maintaining its approved lender status. This subpart also
addresses specific project requirements for the Business and Industry,
Community Facility, and Water and Waste Disposal guaranteed loan
programs, and Renewable Energy System Projects, Energy Efficiency
Improvement Projects and Energy Efficient Equipment and Systems
projects under REAP.
(3) Subpart C contains provisions for origination requirements,
credit evaluations and underwriting, appraisals, guarantees, monitoring
requirements, compliance with other laws, environmental
responsibilities, and conflicts of interest.
(4) Subpart D contains application provisions for a loan guarantee
under this part, including preliminary eligibility reviews and
applications, application evaluation, and application award processes.
This subpart also includes more specific application requirements and
priority point systems for Community Facility, Water and Waste
Disposal, Business and Industry, and REAP projects.
(5) Subpart E contains loan and guarantee provisions. Loan
provisions cover interest rates, term length, loan schedule, repayment,
lender fees, loan amounts, percentage of guarantee, eligible and
ineligible uses of loan funds, and sale or assignment of a guaranteed
loan. Guarantee provisions cover the conditional commitment, loan
closing and conditions precedent to issuing the loan note guarantee
(LNG), the issuance of the LNG, periodic retention and other fees,
replacement of documents, reorganizations, and other legal
requirements.
(6) Subpart F contains provisions for servicing the loan guaranteed
under this part, including oversight, monitoring, and reporting
requirements, and project completion requirements. Servicing topics
covered include audits and financial reports, collateral, loan transfer
and assumption, lender transfer, mergers, servicing fees, subordination
of lien position, repurchases, additional expenditures and loans,
interest rate changes, lender failure and borrower default, protective
advances, liquidation, bankruptcy, litigation, loss calculations and
payments, future recovery, property acquired by the lender, and
termination of the LNG.
Lastly, we included appendices with information about financial
feasibility studies and reports and technical reports for Renewable
Energy Systems and Energy Efficiency Improvement projects under various
project cost thresholds.
B. Delivery of the OneRD Guaranteed Loan Program
While each of the four loan programs remain substantially the same
under OneRD, the way they will be delivered to the Agency's customers
has changed to improve consistency, accountability and transparency. In
delivering OneRD, the Agency will publish Federal Register notices
annually containing specific information associated with the guaranteed
loan programs, such as fee amounts, or project priorities based on
Agency initiatives. Additional programs that may become part of OneRD
in the future will also be announced via Federal Register notice and
this rule will be amended to incorporate those additional programs.
The following paragraphs address OneRD by examining the delivery
mechanisms and include a discussion of the Federal Register notices
that will be used as part of the implementation of the unified
platform.
Eligibility. Under OneRD, four basic types of eligibility are
identified in subpart B: Project eligibility, eligible use of loan
funds, borrower eligibility, and lender eligibility.
Project eligibility is based on the proposed project
benefiting a rural area, on the ability of the activity to be funded to
meet the requirements of the applicable program, on meeting a minimum
set of project criteria, and, when applicable, on the boundaries of the
proposed service area meeting a nondiscrimination criterion. Projects
that do not meet these criteria would be ineligible under OneRD. In
addition, these criteria cannot be voided under the exception authority
provided in this final rule. The applicable project eligibility
requirements, located in Sec. Sec. 5001.102 through 5001.108 of this
final rule, remain essentially unchanged for each of the four loan
programs. However, some differences are discussed in section III of
this preamble. One of the most important differences discussed is that
OneRD uses three
[[Page 42502]]
minimum project financial conditions to reduce project risk by
screening out those projects less likely to achieve a level of success.
These three financial conditions establish minimum requirements for
debt-service coverage ratio, cash equity or community support, and
loan-to-value ratio. While the four loan programs currently address
cash equity or community support, separately, they do not have
requirements associated with debt-service coverage ratios and loan-to-
value ratios. By specifying these project financial conditions in this
final rule, borrowers and lenders can determine a project's eligibility
for a loan guarantee early in the process.
In addition to identifying eligible projects, this final rule
identifies specific projects and purposes that are not eligible to
receive a loan guarantee. The Agency assembled this list based on
analyses of its current portfolio and historic loan defaults as well as
the list of ineligible projects and purposes identified in the existing
regulations for the four loan programs.
Borrower eligibility is based on the borrower meeting the
common requirements outlined in Sec. 5001.126(a) as well as the
program-specific requirements of Sec. 5001.126(b) through (e). This
final rule also identifies borrowers who would be categorically
ineligible in Sec. 5001.127. In terms of eligible and ineligible
entities, there is little change under OneRD compared to the four
current programs.
Lender eligibility is based on the criteria provided in
Sec. 5001.130. Requirements to be an approved lending participant vary
for regulated and non-regulated lending entities.
Regulated lending entities, listed at Sec. 5001.130(b)(1) through
(9), who are subject to supervision and credit examination by an
applicable agency of the United States or a state, who meet the
requirements of Sec. 5001.130(a), are eligible to receive a loan
guarantee without additional documentation being sent to the Agency.
The list of regulated lending entities as well as requirements is
essentially the same as that in the four existing regulations with one
exception. The language, ``. . . or were created specifically by state
statute and operated under the direct supervision of a state government
authority'' were added to allow the issuance of loan guarantees to
state bond banks or state bond pools better clarifying the status of
these entities. Previous language listed these entities; however,
restricting eligibility to lending entities to those ``. . . subject to
supervision and credit examination by the applicable agency . . .''
effectively made them ineligible as they are quasi-state agencies and
not, in most cases, subject to credit examination. State bond banks and
state bond pools have approached the Agency numerous times and have
been declined due to the limiting language.
A non-regulated lending entity that seeks to become an approved
lender must submit a written request to the Agency. The request must
address the criteria listed at Sec. 5001.130(c)(1) and (2).
To address the unique situation of providing capital on tribal
trust lands, the Agency has added a category of ``non-regulated lending
entities servicing tribal trust lands'' at Sec. 5001.130(d). This
designation provides a modified set of criteria that must be met to
become an approved lending entity but restricts lending activity to
tribal trust lands only. Any lending activity proposed outside of
tribal trust lands requires the lending entity to apply and meet the
requirements of Sec. 5001.130(c)(1) and (2).
Approved lender status for all non-regulated lending entities will
last for not more than five years
Currently, each guarantee program has a separate and distinct
process of approving lenders so that a lender approved to originate a
B&I loan is not approved to originate a CF loan and vice versa. This
creates confusion and adds an additional burden to lenders wishing to
participate in multiple guarantee programs. The process described
streamlines the approval process for lenders by providing one unified
approach that approves them for all four guarantee programs. The Agency
believes this approach will expand program usage by enabling lenders to
participate in programs they may not have otherwise been participating
in due to the additional cost and time of being approved.
Guaranteed loan approval. Under the four loan programs, the Agency
views proper loan origination as a responsibility of the lender. OneRD
reinforces the concept of negligent loan origination throughout this
Part to help lenders understand the importance of conducting proper
credit analysis and sound loan origination. The policy regarding
negligence in the origination and servicing of loans is found in Sec.
5001.521(d). The Agency anticipates that the clarification for
negligent loan origination will reduce loan defaults through improved
loan origination. However, in the event of a default, this regulation
provides the Agency remedies for negligent loan origination and
servicing, up to and including a total reduction of the loss claim
payable. However, in the event of loan default, loss claims paid under
the guarantee will be collected from the lender, as stated in Sec.
5001.521.
With OneRD, the Agency has standardized, to the extent possible,
the types of information to be included in the loan guarantee
application, although some additional information is required by some
of the programs described in subpart B of this final rule. In general,
the information associated with a loan guarantee application under
subpart D of OneRD is not significantly different from that originally
required under the existing regulations.
The main difference in the application for a loan guarantee under
OneRD is the amount of supporting documentation that is required to be
submitted with or accompany the application for certain projects.
Project risk will drive the amount of documentation required versus
total project cost thresholds, which were utilized in previous
regulations.
The Agency will examine the lender's analysis of the project, the
technical merit, any business plans or feasibility studies required,
and environmental information. If the Agency disapproves the
application, the lender and borrower have the right to appeal the
decision per 7 CFR 1900, subpart B.
Servicing. Once RD approves a loan guarantee, the lender is
responsible for servicing the entire loan. The lender's servicing
responsibilities under the provisions of OneRD, including those
regarding negligent servicing, are essentially the same as are
currently required under the four loan programs. This information is in
subpart F.
Oversight and monitoring. Under OneRD, as under the four loan
programs, the Agency conducts all oversight and monitoring activities
necessary to ensure that lenders are originating, and servicing Agency
guaranteed loans in a manner consistent with lender and Agency
standards. These activities include, but are not limited to, conducting
lender visits and meetings and requiring various reports and
notifications as discussed throughout subpart C. There are a few
differences in these activities under OneRD compared to those
previously required under the four loan programs. Sections II.1 through
II.4 of this preamble discuss each program in detail.
The Agency also uses this oversight and monitoring to ensure that
lenders maintain the qualification criteria for being an Agency-
approved lender.
Managing Risks. As noted earlier in this preamble, the Agency has
incorporated into the provisions of OneRD certain features to help
manage project, operational, and institutional
[[Page 42503]]
risks, and loss exposure. Those various provisions are discussed in
detail in section III of this preamble.
Federal Register notices. To implement OneRD, the Agency will
publish at least one Federal Register notice each year. Each annual
notice will address the following items as necessary:
Funding Availability. RD will issue notices each year specifying
the amount of funds available for OneRD guarantees. Notices may also
include the following information, should there be change from prior
notices:
[ctrcir] Maximum loan amounts. The Agency will identify in the
Federal Register notice the maximum loan amount per loan guarantee that
will be available under each of the four guaranteed loan programs
within OneRD.
[ctrcir] Percent of Loan Guarantee. The maximum guarantee is 90
percent of eligible guaranteed loan loss pursuant to statutory
authority. The Agency will set annually a guarantee percentage by
program that will apply to loans guaranteed within each program. The
Agency will announce annual guarantee percentages for each program by
publishing a notice in the Federal Register in accordance with Section
5001.10. The annual guarantee percentage may be set at or below the
maximum allowed authorized by statute. The annual guarantee percentage
will take current Federal credit policy into consideration and may be
set at or below the maximum allowed authorized by statute.
[ctrcir] Fees. The Agency will identify the fees, including but not
limited to, the initial guarantee fee rate and the renewal fee that
will be used for the fiscal year for each program in an annual notice
published in the Federal Register.
[ctrcir] Priority Scoring. The Agency will identify in the Federal
Register notice the scoring criteria (e.g., Agency priorities) that
will be used, if necessary, to allocate funds when funds are
insufficient to cover all funding requests within a program.
Additionally, if there are any changes to the OneRD Guaranteed Loan
Program, this rule will be amended accordingly.
C. Changes of Note
The Agency has identified changes, including, but not limited to
lender eligibility, and annual notice contents throughout section III
and IV. Additional items, considered major changes, not addressed
elsewhere include:
The Agriculture Improvement Act of 2018 (Pub. L. 115-334)
amended the definition of rural and rural area in the Consolidated Farm
and Rural Development Act (Pub. L. 92-419) for the CF and WWD guarantee
programs to align the population limit with B&I and REAP. The
definition of rural and rural area, which is unchanged for the B&I and
REAP programs, is any area of a state not in a city or town that has a
population of more than 50,000 inhabitants according to the latest
decennial census of the United States and not in the urbanized area
contiguous and adjacent to a city or town that has a population of more
than 50,000 inhabitants; it is codified in this regulation at Sec.
5001.3. This definition is subject to reservation requirements for the
CF Program found at 7 U.S.C. 1926(a)(24).
To align the Agency's guarantee programs purposes with its
customer's needs, the Agency will allow refinancing as an eligible
project purpose. Included in the regulation is the ability to refinance
lender, other lender and federally guaranteed, including Agency, debt.
There are specific thresholds that must be met for debt to be
considered for refinancing. Refinancing may allow a lender to improve
an applicant's cash flow position or obtain a more favorable lien
position, but the Agency does not anticipate frequent use of this
provision. For a request for refinancing to be eligible for a loan
guarantee, it must meet the requirements of Sec. 5001.102(d)(1)
through (5) as well as those in the applicable program sections
Sec. Sec. 5001.103 through 5001.108. This change expands funding
options for refinancing for some programs and creates a consistent
approach for guaranteeing loans for debt refinancing across all four
programs. Additionally, as CF and WWD direct loans have a statutory
``graduation'' requirement per 7 CFR 1942(b)(5) and 7 CFR 1780.1(c)
Refinancing provides a ``stepping stone'' for those direct borrowers
that may wish to refinance their direct Agency debt but may not meet
all the requirements of a commercial lender without a guarantee.
Recognizing that equity serves a valuable role in providing
stability against unforeseen changes to cash flow or profitability and
is one of the five factors in credit analysis, the OneRD regulation at
Sec. 5001.105(d) removes the B&I program's requirement for tangible
balance sheet equity and replaces it with a requirement for sufficient
equity for all businesses. The tangible balance sheet equity
requirement and calculation is not common in the lending community and
created confusion. The OneRD regulation provides a 10 percent equity
position for a typical existing business and a capital injection based
on projected revenue for new businesses. This change removes a
cumbersome calculation for lenders and aligns the Agency with current
industry practices.
New Markets Tax Credit (NMTC) provisions are included at
Sec. 5001.141. Currently, NMTC requirements are only codified in the
B&I regulation at Sec. 4279.116 even though projects in other programs
may be eligible to participate. By incorporating NMTC requirements into
the OneRD regulation, the Agency ensures a standardized approach to
project, borrower and lender eligibility.
The Agency, recognizing that the lender is familiar with
and understands the nature of the collateral being offered for their
guarantee loan request, and has removed the collateral discounting
requirements currently found at Sec. 4279.131(b)(1)(i) through (iv) in
favor of a lender driven process at Sec. 5001.202(b)(4)(ii). The
lender will rely on discounts that are consistent with sound loan-to-
discounted value practices while ensuring that adequate security exists
for the guaranteed loan. Satisfactory justification of the discounting
factors used must be provided to the Agency. The change will simplify
the discounting process and allow the lender to customize the discount
for each loan. Placing the collateral discounting responsibility on the
lenders and requiring them to justify their discounting factor is a
better alternative than a `strict' standard as currently in the B&I
regulation. For example, currently in the B&I program to meet our
collateral requirements, equipment can be valued no greater than 70%
and real estate no greater than 80% of its value which is generally
considered standard discounting factors. However, these stated factors
may be too low for some collateral and too high for others. Therefore,
OneRD allows some subjectivity, as requested by the lenders, and we
will rely on the proper training of our staff to recognize when
collateral is not discounted on sound discounting practices.
The Agency currently allows the issuance of the loan note
guarantee prior to project completion in the B&I program only. OneRD,
at Sec. 5001.205(e)(2), expands this option to CF, WWD and REAP. There
are additional construction contract, contractor performance and lender
monitoring (Sec. 5001.205(e)(2)(i) through (viii)), and reporting
(Sec. 5001.205(f)) requirements and fees (Sec. 5001.454(c))
associated with this opportunity; however, when requested and approved,
issuing the LNG prior to construction completion allows the lender the
[[Page 42504]]
flexibility to conduct one loan closing for a project involving both
construction and long-term financing.
Currently for CF and WWD guarantee projects, preliminary
architectural and engineering reports (PAR and PER respectively) or
plans must be approved by the lender and concurred on by the Agency.
The Agency provides at Sec. 5001.205(a) the removal of that
requirement and allows the lender to provide engineering or
architectural documentation that meets the level of detail the lender
would typically require for a standard commercial loan. The Agency will
provide assistance to clarify any Agency requirements; however, no
technical oversight or recommendations as to the technical feasibility
of the project will be provided. This change will reduce time and
expenses incurred by the borrower to produce planning documents as well
as reducing processing time as the Agency will rely on the state's
regulatory agency's review and permitting process rather than their
own, duplicative, review.
Currently each of the four programs included in the OneRD
regulation have separate term limit requirements with B&I having the
most prescriptive. The Agency provides at Sec. 5001.402 to allow the
lender to establish and justify the guaranteed loan term for each
individual loan. The term will be based on the justified useful
economic life of the asset being financed, not to exceed 40 years, or
limitations imposed by state statute, whichever is less. The Agency
must concur with the term proposal. This change provides consistency
between the programs and provides flexibility to the lender in
proposing and setting the term of the loan based on their knowledge of
the funding request.
In order to reduce portfolio risk, the OneRD regulation
introduces, at Sec. 5001.406, maximum guaranteed loan amounts to the
CF and WWD programs. The guaranteed loan limits for B&I and REAP are
statutory and remain unchanged from previous regulations.
[cir] The four programs included in the OneRD regulation currently
have separate maximum guarantee percentages. The OneRD regulation, at
Sec. 5001.407, sets the maximum guarantee at 90 percent of eligible
guaranteed loan loss across the four programs. However, the Agency will
set annually a guarantee percentage by program that will apply to loans
guaranteed within each program for the fiscal year. The Agency will
announce annual guarantee percentages for each program by publishing a
notice in the Federal Register in accordance with Sec. 5001.10. The
annual guarantee percentage may be set at or below the maximum allowed
authorized by statute This change provides consistency and certainty
for lenders and gives the Agency the flexibility necessary to
effectively manage its portfolio. Although the guarantee percentage may
vary from program to program, the guarantee percentage will be the same
for all loan guarantees within a program for the year. The annual
guarantee percentage will take current Federal credit policy into
consideration and may be set at or below the maximum allowed authorized
by statute. This will provide certainty for program participants and
consistency across program offices.
To ensure lender responsibility and commitment throughout
the life of the loan, the Agency has increased the minimum retention
percentage from 5 percent to 7.5 percent of the unguaranteed portion of
the loan amount at Sec. 5001.408(a)(3)(i).
At Sec. 5001.454, Sec. 5001.455 and Sec. 5001.456 the Agency
discusses and provides guidance on the various fees and charges that
are currently in place or will be implemented with OneRD, at Sec.
5001.454 and Sec. 5001.455 or that may be implemented in the future,
at Sec. 5001.456. The OneRD sections outline the types of fees that
may be charged and whether those fees may be passed on to the borrower;
however, OneRD does not provide the fee amount. The Agency will
establish actual fee amounts and provide to the public in an annual
notice published in the Federal Register. The fee to be charged and the
fee rate may vary by program. The agency may establish higher fees for
larger loans. By defining the fees that may be charged in the
regulation, and including the specific fee amounts in an annual Federal
Register publication, the Agency is provided the flexibility to
implement administration or congressionally mandated changes quickly
and better respond to changes in its portfolio.
The Agency, at Sec. 5001.454 adds maximum guarantee fee level for
each of the OneRD programs. The Agency feels that setting a maximum
fee, above which a technical change to the rule is required, provides
flexibility to raise fees within a reasonable range without creating a
barrier to participation. As with the fee itself, the maximum fee
varies by program to account for differences in risk by sector and
business models of various project types.
V. Public Participation and Discussion of Comments From Listening
Sessions
The Agency has worked to develop a regulation that is customer
driven and simplifies the processes involved with loan guarantees. From
the application to servicing, the Agency critically reviewed every
process to draft this final rule. The Agency hosted listening sessions
throughout the West, South, Midwest, and Northeast regions with a focus
on improving customer experience with RD's loan guarantee programs. In
addition, RD held a National listening session in Washington, DC, and a
virtual listening session for Tribal communities. From those sessions,
the Agency collected 314 comments and consistently heard that customers
were looking for a more streamlined and refined process. The Agency
appreciates all comments and has considered suggestions from each
commenter.
The following sections discuss each comment and the Agency's
responses, organized by subpart of the new regulations with each
section organized by comment paragraph and then Agency response
paragraph. Sections with multiple comments will continue the comment/
response paragraph pairing format until all comments for that section
are addressed. Comments are as received from listening session
participants. The Agency has done its best to interpret the context and
meaning of each comment or question.
Subpart A--General Provisions
Definitions
One commenter asked for a definition of affiliates for B&I loan
documentation. The commenter's interpretation of the current
regulations is to obtain financial statements for any affiliate of the
borrower, regardless of the ownership percentage. The commenter then
said that there should be a threshold of 50 percent or more ownership
to be considered an affiliate.
Agency's Response: Per Sec. 5001.3, this final rule defines an
affiliate as a person or entity with control over the borrower, with no
specific ownership percentage identified.
Definition of Rural and Population Limits
The Agency received comments asking to standardize rural population
standards and definition across all programs.
Agency's Response: The Agricultural Improvement Act of 2018
expanded the population limit for the CF and WWD guarantee programs, in
agreement with this comment. The new population
[[Page 42505]]
limits have been incorporated into OneRD, so all four guarantee
programs now have the same definition of rural and rural area.
Subpart B--Eligibility Provisions
Program Specific Requirements and Concerns
One commenter asked if Risk Management Association (RMA) statements
are required for the B&I guaranteed loan program. The commenter added
that lenders do not analyze RMA statements and questioned if RMA
statements were necessary as a result.
Agency's Response: The Agency uses the RMA information as an
industry comparison to the borrower's financial statements. However,
the Agency does not require that lender submit RMA statements as part
of the application. The regulation states that spreadsheets and
analysis of the financial statements are accepted in a credit
evaluation if they comply with industry standards. Standards for
financial information are also discussed in Sec. 5001.9.
Eligibility
The Agency received several comments with concerns about
eligibility for OneRD guaranteed loans programs. We divided the
comments into subcategories regarding eligibility for borrowers,
lenders, loan purposes, and projects, and respond point by point.
Borrowers
Commenters discussing eligibility for guaranteed loan borrowers
recommended the Agency revise or simplify its ``credit elsewhere''
requirements. One commenter said that the Small Business
Administration's version of credit elsewhere requirements is better
tailored to rural markets.
Agency's Response: In accordance with 7 U.S.C. 1983, the Agency has
a statutory requirement for the CF and WWD program to document that the
applicant is unable to obtain the required credit from private,
commercial, or cooperative sources at reasonable rates and terms
without the RD loan guarantee. The lender also has a responsibility to
evaluate and certify to the Agency that it would not make the loan
without a guarantee (Community Facilities and Water and Waste Disposal
Programs only). The Agency considered the commenters' remarks in
developing the regulation and accompanying guidance to address the
proper analysis and documentation of this eligibility criterion.
One commenter asked if Alaska Native Corporations are considered
Tribal governments.
Agency's Response: Under the OneRD Guarantee regulation, applicant
eligibility will vary from program to program based on the authority
provided by Congress. Based on the definition of Indian tribe at 25
U.S.C. 5304(e), if the Alaska Native Corporation is defined in or
established pursuant to the Alaska Native Claims Settlement Act (43
U.S.C. 1601 et seq.) they would meet the definition of Indian tribe and
potentially be eligible.
Lenders
Regarding the Community Facilities and Water and Waste Disposal
programs, one commenter said that for non-regulated lenders, the Agency
should ``issue a statement of good standing so new application is not
needed'' and, ``if no loss claim is made, process an automatic
renewal.'' Another commenter said that Rural Development should
consider using Aeris Ratings (formerly the Community Development
Financial Institution Assessment and Rating System) for outside credit
examination of non-regulated entities like the B&I Guaranteed Loan
program.
Agency's Response: Under the OneRD Guarantee regulation, the
approval and renewal process for non-regulated entities will be the
same across all programs. Currently, Rural Development does not allow
an automatic renewal as suggested by the commenter, but the regulation
does provide a streamlined renewal process for non-regulated lenders
that meet certain thresholds. Regarding the suggestion from the second
commenter, Rural Development already considers Aeris to be an approved
credit examination entity and does accept the use of Aeris to evaluate
outside credit of non-regulated entities.
Projects
Some comments suggested the Agency eliminate, modify, or clarify
how projects will ``primarily serve rural areas'' in the Community
Facilities program.
Agency's Response: 7 U.S.C. 1926(a)(1) under which the Community
Facilities guarantee program operates authorizes assistance to entities
``primarily serving'' rural businesses and other rural residents.
Therefore, in addition to the location of the facility (i.e., rural
area) we must also determine who is being served by the facility or
service in order to determine eligibility. While we cannot eliminate
this provision due to statutory requirements, as was suggested by one
commenter, more clarity on meeting this eligibility criterion has been
provided.
Loan Purposes
Some comments received inquired about refinancing Community
Facility loans. One comment specifically recommended the Agency allow
refinancing of over more than 50 percent on Community Facilities loans.
Agency's Response: In the CF program.
Maintenance of Approved Lender Status: Preferred Lenders
There were comments in the docket regarding a preferred lender
program. The commenters suggested adding a preferred lending program to
the OneRD program. One commenter noted that under a preferred lender
program ``banks that use USDA lending can be put in SBA categories.''
Another commenter added that a preferred lender program should contain
``uniform requirements across all programs.''
Agency's Response: The Agency has determined that it will not
implement a preferred lender program with this regulation. As the
regulation covers varying types of eligible projects, it would be
difficult to develop a common preferred lender program. We want to
encourage lenders of all sizes and capacities to utilize the program
and ensure funds are available to all to the extent possible, and a
preferred lender program may affect our ability to fund projects with
smaller lenders. The OneRD regulation provides consistent lender
eligibility criteria for the guaranteed loan programs. The Agency also
added a new provision for non-regulated lenders providing loans to
entities located on Tribal Trust lands. Rural Development monitors
lenders for liquidity and reviews their guaranteed loan quality and
activity on a regular basis.
Lender Participation
The Agency received one comment regarding lender participation in
OneRD. The commenter said that this final rule should not disadvantage
small lenders. Instead, the commenter said the Agency should ensure the
maximum number of lenders use the programs so that the maximum number
of rural communities are served via these loan programs under OneRD.
The commenter added that maximizing the number of lenders using the
program rather than promoting fewer, larger lenders will result in a
``broad base of support for the program from stakeholders.''
Agency's Response: The Agency wishes to maximize the number of
[[Page 42506]]
lenders using the programs and therefore, the OneRD final rule looks to
increase application efficiency, which will benefit all lenders
regardless of size.
New Markets Tax Credit
A commenter expressed concern that a 7-year foreclosure forbearance
period makes it difficult to pair lender programs with New Market Tax
Credit (NMTC) benefits, particularly for community banks. Another
commenter said that banks would like to use the ``B&I guarantee product
on the leverage loan piece of the NMTC structure''.
Agency's Response: OneRD allows a leveraged lender in the NMTC
leveraged equity structure of that transaction to receive guaranteed
loans. The 7-year forbearance agreement is protection for the NMTC
investor, typical of all NMTC transactions, and must be factored as a
credit risk by the lender in their analysis.
Regarding another commenter's concern about recognizing forbearance
limitations, we added a provision to OneRD that the sub-Community
Development Entity (sub-CDE) must include in its operating agreement
that the investor fund entity has approval rights to certain loan
servicing actions by the sub-CDE lender. The intention of this addition
is to allow the guaranteed loan lender the ability to monitor any
forbearance or servicing actions by the sub-CDE lender and protect
their interests in the project.
One commenter indicated that requiring a lender upfront to state
its plan to allow for debt forgiveness could create NMTC compliance
issues. Qualified Low-Income Community Investments must meet the ``true
debt'' requirement under Internal Revenue Service rules. Another
commenter wanted the Agency to address the impact of unwinding the NMTC
structure at the end of the 7-year compliance period based on a
reference in the regulations. The commenter wanted clarification that
the unwind plan could include the transfer of the guaranty between debt
instruments.
Agency's Response: The Agency has taken into consideration the two
comments related to sub-CDE. With this regulation, we have added a
provision that the sub-CDE must include in its operating agreement that
the investor fund entity has approval rights to certain loan servicing
actions by the sub-CDE lender. We have also eliminated the requirement
to provide an exit strategy for the NMTC investor.
Another commenter said regulations in 7 CFR 4279.126(a) that
require that loan terms must be equal in length create issues because
the B-note is usually longer than the A-note in NMTC projects.
Agency's Response: The provision referenced by the commenter
requires that the maturity and related payment schedule of the lender's
guaranteed loan to the borrower must be no longer than the maturity and
related payment schedule of the sub-CDE's loan to the Qualified Active
Low Income Community Business (QALICB) funded by the direct tracing
method in a leveraged equity structure. This requirement allows a
smooth transfer and assumption of the leveraged lender's loan, if
necessary, and retains the guarantee. The regulation does not require
equal terms between the two loans from the CDE to the QALICB, see Sec.
5001.141.
Subpart C--Origination Provisions
Environmental Responsibilities
The Agency received some comments regarding National Environmental
Policy Act (NEPA) requirements to apply for a OneRD loan guarantee.
Most of the commenters suggested that environmental reporting slows
down the process of application approval because of its complexity. One
commenter noted that the Agency provides sufficient guidance on
environmental reporting, but now lenders need to hire a consulting firm
to get the loan approved, citing a $15,000 fee that needs to be paid up
front. Another commenter added that the Agency's environmental
requirements for New Markets Tax Credits (NMTC) ``are more stringent
and time intensive than the other financing entities, which often
include multiple banks.'' A commenter recommended the USDA revert to
completing this requirement in-house, which was supported by another
commenter who said the previous environmental regulations were ``much
less costly and didn't take as long to approve'' and asked if a
National Office review of the project would be possible if the State
Office evaluation is delayed. A commenter said that it would be ``more
appropriate for the lender to have the flexibility to run environmental
lien searches and have questionnaires completed by the borrowers to
determine what environmental risks are present.'' Overall, the
commenter did not believe a blanket Phase 1 requirement is the best way
to address environmental risks.
Agency's Response: The Agency's environmental policies and
procedures regulation (7 CFR 1970) has decreased the number of
Environmental Assessments required and has reduced the time to complete
environmental reviews across all programs. A few programs have seen an
increase in the level of environmental review. Environmental site
assessments that are not part of compliance with NEPA are completed
only when the Agency will finance real estate and are a risk management
decision made on a case-by-case basis by the agency and offer
protection to the lender, borrower, and agency. RD is continually
evaluating and implementing ways to improve efficiency of all
environmental review and will continue to do so.
Standards for Financial Information
One commenter shared concern that onerous costs include
environmental reports and account financials.
Agency's Response: Environmental compliance is statutory, and
compliance has been improved through the expanded capability to provide
a categorical exclusion for eligible projects. The list of categorical
exclusions can be found at 7 CFR 1970.53 and 1970.54. The list of
projects referenced in Sec. 5001.102 ``Project eligibility--general''
will often fall under Sec. Sec. 1970.53 (which may require additional
information) and 1970.54 (which will always require an environmental
report) list of categorical exclusions. We encourage lenders and
borrowers to work with RD staff to ensure that any environmental
reports are focused on projects and impacts that need analysis and not
pay for assessments related to projects and impacts that are
unnecessary. Standards for financial information in Sec. 5001.9
provide flexibility to provide financial information that is prepared
and submitted in accordance with accounting practices acceptable to the
Agency. They include, but are not limited to, GAAP and the industry's
standard accounting practices.
Origination and Credit Evaluations
Two commenters suggested that the Agency should consider using tax
returns as a more consistent approach to analyze underwriting and as
the basis of historical financial statement for B&I guaranteed loans.
Agency's Response: Standards for financial information as noted in
Sec. 5001.9 provides flexibility to provide financial information that
is prepared and submitted in accordance with accounting practices
acceptable to the Agency. Those include, but are not limited to, GAAP
and the industry's standard accounting practices. Tax returns often
include accelerated depreciation and other tax treatments that impact a
borrower's balance sheet,
[[Page 42507]]
or they are too generally summarized and do not contain details about
the description of assets (e.g., fixed assets and liabilities).
The Agency received some comments about lender autonomy and
responsibilities during the application process. Some commenters said
that there are too many offices involved in the approval process, and
that the Agency must allow the lender to be the primary point of
contact, especially regarding credit analysis and underwriting.
Agency's Response: The Agency respects the role of the lender and
their relationship to the borrower and has established a process that
is respectful of that relationship. The Agency has streamlined and
standardized its credit risk evaluation and continues to review its
policies.
One commenter suggested methods for lender responsibility and
commitment during the application process for OneRD. The commenter said
that the application process should clearly outline the responsibility
of the lender and timeline and review process of the Agency. Not only
should the lender be responsible for underwriting the project, the
lender should be required to keep ``skin in the game'' for the life of
the project. The commenter closed with suggesting that encouraging a
commitment to deep rural customer relationships has been a hallmark of
USDA programs, and should continue to be encouraged with a new lending
partner.
Agency's Response: The OneRD regulation defines lender and Agency
roles. The Agency will also be providing training to lenders and field
staff on their individual roles and responsibilities including time
frames. The Agency is developing an electronic application intake
system, which will communicate with the lender as the application
progresses through each phase of processing. The desire is that the
electronic system will help provide a consistent processing timeframe
and enhance the lender's relationship with the Agency. The minimum
retention percentage has been increased to 7.5 percent of the
unguaranteed portion of the loan amount from 5% at Sec.
5001.408(a)(3)(i). By raising the percentage to 7.5%, which is a
nominal increase, we believe that this will help ensure lender
responsibility and commitment throughout the life of the loan. Other
lender responsibilities are outlined in Sec. 5001.6 ``General Lender
responsibilities.''
A commenter asked if it was possible for a company working on a
OneRD project to use tax credit programs for building marine
transportation vessels that transport agricultural resources.
Agency's Response: OneRD will help leverage Agency programs to suit
the needs of the credit. Due to OneRD and tax credit program
requirements, each structure is reviewed independently to ensure
eligibility and compliance; therefore, the Agency cannot comment on a
specific project's eligibility.
Appraisals
The Agency received three comments regarding appraisal process for
OneRD loans. One commenter suggested that appraisal reviews conducted
by a Certified General Appraiser should not require additional review
by USDA. Another commenter said that to use market value, appraisals
would need to be done ``as-is,'' and not as an ongoing concern value. A
third commenter recommended that the Agency should provide lenders with
a list of approved appraisers so that two appraisals are unnecessary.
Agency's Response: We agree that qualified and licensed appraisers
provide valuable insight to asset value. The Agency requires appraisals
to meet the Financial Institution Reform, Recover, and Enforcement Act
(FIRREA) and Uniform Standards of Professional Appraisal Practice
(USPAP) requirements, and the lender to provide an independent review
of the appraisal--both of which are also required by banking
regulators. The regulation requires real estate appraisals when the
value of the collateral exceeds $500,000 or the current limitation
under the Financial Institutions Reform, Recovery and Enforcement Act
Public Law 101-73, 103 Stat. 183 (1989).
Tangible Balance Sheet Equity Requirements
The Agency received comments about current Tangible Balance Sheet
Equity (TBSE) requirements for B&I guaranteed loans. For B&I guaranteed
loans, one commenter suggested the Agency allow NMTC Equity to serve as
a TBSE for easier leveraging of NMTC investment with Community
Facilities and other Rural Development project financing. Other
comments suggested simply revising TBSE requirements or providing
additional options outside of TBSE requirements, such as market-based
financial statements ``based on current appraised value'' or using tax
returns ``with verifications for financial information.'' One commenter
said eliminating the TBSE requirement would benefit lenders because
``[n]o other lender uses this practice and it creates a huge distortion
of market asset value.''
Agency's Response: Equity serves a valuable role in providing
business stability against unforeseen changes to cash flow or
profitability and is one of the five factors of credit analysis. The
OneRD regulation of the B&I program will require sufficient equity for
an existing business, stated as a 10-percent balance sheet equity
position or capital investment into the project to at least 10 percent
of the project cost for a typical business, with criteria for issuance
of an exception to the minimum equity requirement. Typical new
businesses will have the option of meeting equity requirements by
contributing either 20 percent balance sheet equity or injection of
capital equal to at least 25 percent of the project costs.
USDA Partnerships
We received two comments about USDA partnerships. A commenter
requested the Agency continue to create Memorandums of Understanding
with guaranteed loan programs across the government. The commenter
added that these partnerships ``will help create greater flexibility
for lenders, which ultimately helps their customers.''
Agency's Response: The Agency agrees with this comment and has
participated in an MOU with the Small Business Administration since
2018. This is a focus of OneRD's outreach plans. However, the process
for engaging in a Memorandum of Understanding is separate from the
rulemaking process.
Subpart D--Guarantee Application Provisions
Application Evaluation
One commenter stated that the B&I application process is cumbersome
and recommended that the Agency use bank-provided information to meet
Rural Development application financial requirements instead.
Agency's Response: The Agency must obtain information to enable it
to expeditiously complete its review process and ensure compliance with
statutory and regulatory requirements. While receipt of the information
is required, the format for presenting that information to the Agency
is not specified and may include lender's documents and forms.
Reservation of Funds
One commenter suggested the Agency allow lenders to request
reservation of funds for loans in progress to ensure they obtain the
guarantees.
Agency's Response: The Agency reviews the pipeline of applications
on a regular basis but is not authorized to
[[Page 42508]]
hold funds for a specific project. Project awards will continue to be
made with available funds only after credit approval by the Agency. The
Agency reviews applications as they are received; however, depending on
the completeness of the application or the complexity of the proposal,
applications may not receive conditional commitments in that same
order. This is especially common near the end of a federal fiscal year
when the value of applications received exceeds the funds remaining.
The Agency does not propose a reservation of funds process as that
could potentially ``tie up'' funding for a reserved application that
might or might not be ready to obligate to the detriment of an
application that is complete and ready to move forward.
Feasibility Studies
Seven comments were received pertaining to the Agency's process in
conducting feasibility studies. All of the comments had some type of
recommendation on how to revise the feasibility study requirements,
such as increasing the length of the validity period, specifying
requirements to the intended industry or business, being more flexible
for third-party feasibility studies, requiring third-party feasibility
studies only on requests over $10 million and providing more resources
for compliance.
Agency's Response: This final rule provides consistency in the
application of the feasibility study requirements across all four
programs. The Agency will rely upon the lender's analysis of the five
feasibility study components provided in the lender's analysis,
borrower's business plan, or other project information, to determine a
basis for successful repayment of the guaranteed loan. Projects not
adequately documented and that pose a higher risk to the Agency will be
subject to the requirements of a third-party feasibility study. The
requirements will vary depending on items such as the nature of the
project, the project's impact to the borrower's operation and financial
stability, size of guarantee loan request, borrower history, market
conditions, collateral, and other factors.
Guarantee Thresholds
The Agency received comments about the threshold for guarantees on
an eligible loan. The comments suggested that all programs under OneRD
should have a maximum guarantee of 90 percent of eligible loans like
the Community Facilities guaranteed loan.
Agency's Response: The Agency has considered various approaches to
bring uniformity across all four programs in the maximum amount of loan
guarantee percentages established in the OneRD Guarantee regulation.
Consideration was given to statutory authority that limits some
program's options. The maximum guarantee is 90 percent of eligible loan
loss. The annual guarantee percentage will take current Federal credit
policy into consideration and may be set at or below the maximum
allowed authorized by statute. The Agency will announce, annually,
guarantee percentages for each program by publishing a notice in the
Federal Register.
Priority Scoring
The Agency received comments suggesting changes to OneRD's priority
point system. One commenter suggested priority points for loans of more
than $1 million, and a second commenter requested more guidance on
priority scoring.
Agency's Response: We have considered the commenter's suggestion to
add priority points for loans of more than $1 million. Loan size, where
larger guarantee loan requests receive greater priority over smaller
guarantee loan requests, is not a priority factor the Agency will use
in any of its OneRD Guarantee programs. However, priority factors may
change. Any changes will be published in a Federal Register notice.
Regarding the second commenter's concern, this final rule provides
consistent language as it relates to the purpose and use of assigning
points in order to prioritize guarantee loan awards for funding.
Priority points are assigned to all applications and play an important
role when funds requested by otherwise potentially successful
applications and guarantee loan requests exceed the lending authority
of guarantee funds available. Due to the varying purposes of each
guarantee program within OneRD Guarantee, there are differences in each
program's priorities. For example, the B&I Guarantee Program focuses on
creating jobs, while the Water and Environmental Program focuses on
providing safe reliable drinking water.
Application Evaluation
One commenter suggested that, for small loans under $100,000, the
Agency should consider a less detailed application. Another commenter
suggested the Agency provide a short application form for small loans
under $1 million to $2 million in size. The commenter also said the
Agency should have one ``Master application'' for the overall single
platform.
Agency's Response: The Agency has created a single application for
all four programs, which we believe will streamline the process for
lenders. B&I has provisions for loans of less than $600,000 to provide
a lower document application, if they meet certain criteria; however,
there is not an overall ``low doc'' application process as loan size is
not necessarily an indicator of project complexity or risk. The Agency
is developing an on-line application process that they believe will
streamline the process further.
One commenter expressed concern about the Agency's need for due
diligence to mitigate risk.
Agency's Response: The Agency relies on the lender's due diligence
and underwriting to mitigate credit risk and performs a secondary
review of the loan to assure credit quality and regulatory adherence.
The Agency also monitors the lender's guaranteed loan portfolio to
evaluate the borrower's loan performance and timely lender reporting.
The Agency believes that OneRD provides a balance between the lender's
and the Agency's needs.
Application Award Process
One commenter asked the Agency to not require System for Award
Management (SAM) registration for guaranteed loans based on the
commenter's understanding that other Federal guarantee programs do not
require SAM registration for guaranteed loans. Another commenter
suggested eliminating the need for SAM registration, specifically for
Rural Energy for America Program (REAP). The commenter said that SAM
registration inhibits the number of small applications because the REAP
program is inaccessible for areas that do not have internet access.
Agency's Response: The Agency acknowledges this concern; however
SAM requirements are outside the scope of this rulemaking.
Approval Authority
The Agency received comments about allowing more State, district,
and county offices to approve loan applications. One commenter
recommended that the Agency allow county, district, or State Offices to
approve all loans that are smaller in size. Another commenter suggested
having various levels within Rural Development approve loans of certain
dollar amounts and categories and provided the example of Water and
Waste Disposal Loan Guarantee of less than $5 million could be approved
by the local Rural Development office, while a loan of greater than $5
million would need to be approved by the National Office. A comment
suggested that there could be an option for lenders
[[Page 42509]]
to send loan approvals to the National Office if there have been
approval issues at the local office. The reasoning for this option is
that it would help to keep local projects locally controlled but allow
for a lender to move projects up the chain if necessary. A commenter
suggested that the multiple levels of loan review done between the
state and National Office are duplicative and time-consuming. Two more
levels of review are done after the state offices have reviewed and
approved the loans. This is duplicative, time consuming, and prevents
timely approval.
Agency's Response: The Agency's internal operations, such as loan
approval authority, are governed by a separate regulation and not part
of this regulatory process; however, the comments will be taken under
advisement.
Preliminary Engineering Report (PERs)
The Agency received comments requesting a change to the PER (also
referred to as engineering reports or engineering documentation) review
process. Some comments suggested the Agency allow expedited PER reviews
for guaranteed Water and Environmental Program loans, such as Water and
Waste Disposal. One commenter explained, ``The lender is making the
loans and has credit policies in place to make sound loans. Consulting
engineers are licensed, and the projects are regulated by their state
and local agencies so additional review by RD is not needed.'' Another
commenter said ``that the Agency should provide a waiver of engineering
or architectural reports for small equipment type only projects like
solar panel installation, waterflow meters, and lift stations'', while
another commenter suggested the Agency not require PER reviews for
loans under $1 million in size. Some commenters added that PER reviews
are a barrier to potential lenders who want to use USDA lending
programs.
Agency's Response: The Agency requires project information as part
of its application review process; however, it has scaled back the
specific information requested and leaves the level of detail required
for the planning documents to the lender. Section 5001.305(a) discusses
the details that must be included in a lender's engineering
documentation. The Agency will, if requested, provide assistance on
Agency requirements and regulations but will not provide technical
oversight or recommendations. In the event of default, the Agency may
review the planning documents as part of the loss claim process. If it
is determined that the project was not designed utilizing accepted
engineering practices, the loss claim may be reduced.
Subpart E--Loan and Guarantee Provisions
Underwriting
One commenter suggested the Agency consider credit quality of
borrowers applying to OneRD, adding that borrowers in high default
industries are still being approved by the Agency.
Agency's Response: The Agency resolves these issues by reviewing
each application for credit quality and monitoring its loan portfolio
to mitigate industry concentrations. It is the intent of OneRD to
assist the lender in preparing and the Agency in reviewing all
applications based on sound lending practices, even those in high
default or risk industries.
Regarding automation and application processing, one commenter
suggested that the Agency share underwriting expertise between States
to reduce the learning curve for loan specialists in understanding many
different industries and business types.
Agency's Response: The commenter's suggestion describes an existing
process. Throughout this final rule, we state the responsibilities of
State and National Offices. Agency field staff can readily use the
National Office for support and analysis of industries unfamiliar to
them. OneRD lays out credit evaluation factors for the lender and staff
instructions and training will assist the processing staff in
evaluating the credit factors and the risk of each credit factor.
One commenter said that the Agency should establish regulatory
thresholds for loan reviews based on the funding amount requested, and
that small amounts should have less regulatory burden.
Agency's Response: The Agency has considered this comment. The
Agency is obligated to continue to review all loans for statutory and
regulatory compliance; however, we have streamlined the application
process and believe that it will improve the process for all
applications, not just small ones.
Capital and Secondary Market Concerns
The Agency received many comments about how capital and secondary
market concerns affect the implementation of OneRD. Most comments
expressed concern about the Agency's focus on its Community Facilities
Direct Loan Program. One commenter said the ``current over-emphasis by
USDA on the Community Facilities Direct Loan program has become a very
real threat to the continued viability of the Community Facilities
Guaranteed Loan program'' and recommended ``strengthening'' the
Community Facilities Guaranteed Loan Program to ``increase the
participation of the banking industry in these types of loans.''
Agency's Response: The intent of the OneRD Guarantee program is to
increase the usage of the Agency's guarantee programs and provide
needed capital in rural areas. The new regulation and streamlined
application process should encourage more lender participation. With
respect to the Community Facilities Direct loan program, the Agency is
required by statute to consider the availability of commercial credit
at reasonable rates and terms for each direct loan applicant. We
routinely review the ``other credit'' requirement with staff and train
them on the proper analysis and documentation to support the Agency's
decision. The Agency welcomes the participation of lenders to finance
community facility projects either with or without a guarantee in
conjunction with a direct loan.
One commenter said that for B&I guaranteed loans, stoppage of
interest at 90 days dissuades secondary markets from working with
lenders and causes reluctance on the part of lenders to work with
borrowers on workout agreements; thus, increasing work for USDA.
Agency's Response: The Agency is, under certain circumstances,
increasing the 90-day interest termination date to 180-days (see Sec.
5001.450(g)(1) for specific criteria) to allow lenders time for
development of a restructuring plan. Lenders would retain the option to
repurchase the loan guarantee from a Holder to allow for debt
servicing, including restructuring of the loan.
One commenter suggested providing a ``separate section'' in the
regulation for loans that involve the capital markets or
``underwritten'' deals. The commenter said that providing a separate
section would allow these loans to be made as they always have been
made but would also allow borrowers and lenders to ``take advantage of
the lower rates and better terms in the capital markets'' accordingly.
Agency's Response: This comment appears to relate to the
Biorefinery, Renewable Chemical, and Biobased Product Manufacturing
Assistance Program (Section 9003) that was included in this regulation
at the time of the listening sessions. Due to significant differences
between this program and the CF, WWD, B&I and REAP programs, the
Section 9003 program was removed from consideration in this rule. The
only other capital markets items in this regulation are for investors
in the New
[[Page 42510]]
Markets Tax Credit program which has a separate section, Sec.
5001.141, in the OneRD regulation.
One commenter suggested the Agency allow an Assignment Guarantee
Agreement to be assigned to a trustee for the benefit of investors. The
commenter said this would ``increase participation in guarantee
programs and capital markets.''
Agency's Response: The Agency acknowledges this comment for
consideration. The Agency must ensure that the Lender or Holder retains
ownership of the loan. While Lenders can assign all or part of the
guaranteed portion of the loan and Holders can reassign the note in
full, this final rule does not allow for further subdivision of the
loan. The OneRD regulation removes the limit on the number of
promissory notes that may be assigned. The regulation does not limit
the number of holder transfers that can occur on the maximum of the
five notes, though the Agency must be notified when transferred.
One commenter recommended the Agency rate the secondary market debt
and include rating agencies in its analysis discussions to create a
global market instead of a local market.
Agency's Response: The secondary market has provided analysis of
the commenter's suggestion. The process of rating secondary market debt
would be outside of USDA's oversight as we work directly with the
Lender making the loan, who then choses to engage or not engage the
secondary market.
Subsidy Rates
The Agency received comments about balancing subsidy rates within
the OneRD programs. One commenter suggested the Agency balance higher
subsidy rates versus lower level of funding, while another commenter
said that the subsidy rate factor ``is low and on the decline.''
Agency's Response: Sec. 6418 of the 2018 Farm Bill mandated the
Secretary of Agriculture to use lender fees to charge and collect
various amounts to bring down the costs of subsidies for guaranteed
loans under Section 333 of the CONAct. However, the fees must not act
as a bar to participation, nor be inconsistent with current practices
in the marketplace. The Secretary was directed to conduct a study of
several guaranteed lending programs to determine the appropriate fee
structure, as a result. Therefore, this final rule implements the 2018
Farm Bill's requirements regarding guaranteed loan fees.
One commenter asked the Agency to share additional information
regarding the program's subsidy rates.
Agency's Response: The Federal Credit Reform Act of 1990 (FCRA)
requires agencies to estimate the cost to the government of extending
or guaranteeing credit. Agencies generally update--or re-estimate--
subsidy costs annually to reflect both actual loan performance and
changes in expected future loan performance. More information on this
can be found in Part 5 of OMB Circular A-11, ``Preparation, Submission
and Execution of the Budget.''
A commenter recommended the Agency consider expressly allowing
leverage loans to be made on an interest-only basis for up to 7 years.
The commenter's reasoning is that ``such loans could provide for a
`balloon' payment at the end of that period to make up for the
amortization that would otherwise have occurred during that period.''
The commenter said that ``assurance that the funds would be available
when needed to make that balloon payment could be provided, at least in
substantial part, by reserves established at the Project Loan level, or
perhaps by other means.'' The commenter added that in some NMTC
transactions, ``amortization of leverage loans is accomplished by
having another (subordinate) Leverage Lender make advances to the
Investment Fund during the compliance period, which the Investment Fund
uses to make amortization payments on the primary (senior) leverage
loan.'' The commenter reasoned that, in these situations, ``the total
amount of debt of the Investment Fund remains constant--the junior
leverage loan balance just increases as the senior leverage loan
decreases.'' The commenter expressed uncertainty as to whether the
solution provided would be reasonable in the case of USDA guaranteed
loans, ``partly due to the complication of having subordinated debt,
and partly due to the fact that the source of funds is not directly
related to the underlying Project Loan or the performance of the
underlying project,'' and added that, rather, ``it would depend on the
credit evaluation of the junior leverage lender.''
Agency's Response: OneRD includes a provision allowing interest-
only payments by a borrower pursuant to an interest-only term not to
exceed 7 years on a loan made under a NMTC structure if the lender
requires: (1) A debt payment reserve fund or sinking fund in an amount
equal to the guaranteed loan's principal amortization that would have
otherwise applied to the loan if equally amortized payments were
collected during the seven year term, and (2) such reserve funds or
sinking funds are applied to the guaranteed loan as an additional
payment of principal to the guaranteed loan at the end of the interest-
only term.
Funding Availability
The Agency received comments about funding availability and
managing community resources.
Some commenters expressed a lack of confidence in terms of program
availability, which prevents lenders from committing resources.
Agency's Response: The Agency receives funding through
Congressional appropriations, and subsidy rates establish the level of
program funding available. Program revenues, delinquency rate, losses,
anticipated revenues and other factors affect these subsidy rates. The
use of Continuing Resolutions instead of a full fiscal year budget also
affects when funds are available to the program areas.
Another commenter suggested increasing flexibility on the ability
to shift funding between Rural Development loan programs.
Agency's Response: The ability to transfer funds within a program
are established by statute and moving funds from one guaranteed loan
program to another program requires statutory authorization and
Congressional approval. Therefore, the Agency cannot approve loan
program transfers without the requisite authority and congressional
approval.
One commenter wanted the Agency to allow the approval and issuance
of Conditional Commitments, which would be subject to funding
availability to help when funding runs out at the end of the fiscal
year and projects are waiting for funding obligations.
Agency's Response: Issuing a Conditional Commitment prior to
funding availability is not authorized under law.
A commenter suggested additional guidance for lenders from the
Agency regarding funding situations and the scoring model.
Agency's Response: The availability of program funding is
communicated to field staff on a weekly basis. Priority scoring is
essential to determine worthy projects when programs have limited
funding, with projects being funded from the highest to lowest scores
using the amount of available funds. State Offices are made aware of
this process before enactment.
Loan Threshold
One commenter asked the Agency to consider increasing the current
cap of
[[Page 42511]]
$25 million on REAP, as it is often too low for larger projects.
Agency's Response: The $25 million cap on REAP is statutory;
therefore, the cap cannot be increased by the OneRD final rule.
Subpart F--Servicing Provisions
Loan Note Guarantee Construction
The Agency received comments discussing the effects of OneRD on LNG
construction projects.
Some commenters suggested that, for the Community Facilities and
Water and Environmental Programs, the Agency follow the B&I guaranteed
loan system by issuing the LNG at the closing and signing process or
during construction instead of at the end of construction. One
commenter said that this would create a ``clearer path for holders if
default occurs'' and another commenter said this change would ``help
smaller lenders mitigate construction risk.'' Other commenters
supported the upfront guarantee for some of OneRD's programs.
Agency's Response: The Agency will provide a consistent approach
across all programs under OneRD Guarantee to allow for the issuance of
the LNG during construction. As this poses more risk to the Agency, it
will be mitigated with additional lender documentation and enhanced
lender oversight along with a lower guarantee percent and additional
lender fee.
Of the comments the Agency received specifically about LNG fees,
most of the commenters asked to lower the fees, or to remove them
altogether. One commenter said that the current 3-percent fee is too
high and asked the Agency to consider reverting to a 1-percent fee that
``resulted in great impact and turned the economy around.'' A commenter
suggested that continuing servicing fees will negatively impact
borrowers. Other recommendations included raising fees on the largest
RD loans while lowering fees on the smaller sized loans; providing fee
waivers for loan guarantees in excess of $5 million that promote fresh
fruits and vegetables; and reducing initial and annual fees to match
the REAP program, which has an initial fee of 1 percent and annual fees
of 0.25 percent, while the B&I program has fees of 3 percent initially
and 0.50 percent annually.
Agency's Response: The 2018 Farm Bill requires the Agency to
``charge and collect from the lender fees in such amounts as to bring
down the costs of subsidies . . .'' The Agency is reviewing its fee
structure for all the programs included in the proposed regulation to
ensure it meets the requirements set out by Congress.
A commenter asked if this new rule will look at one overall
guarantee fee or if it will still be based on the specific program.
Another commenter asked if the Agency puts the model in the
calculation, could the public see how these fees are calculated so they
can also comment on those calculations.
Agency's Response: Subsidies will still be set individually for
each program and are internal operations decisions. Therefore, we are
not adding a one-size-fits-all fee structure to this final rule.
Federal credit polices stipulate that fees should be set at levels that
minimize default and other subsidy costs of the loan guarantee, while
supporting achievement of the program's policy objectives.
LNG Validity
One comment suggested providing registration or official Government
approval on the LNG to evidence the validity of the document.
Agency's Response: The Agency has a form to address certification
of approval--currently Form RD 4279-7, ``Certificate of Incumbency and
Signature.'' This form can be requested by the lender or secondary
market holder.
Servicing Requirements
One commenter suggested streamlining servicing requirements for
loans that are performing.
Agency's Response: OneRD has streamlined servicing requirements to
include lender discretion regarding submitting annual financial
statements for loans totaling $600,000 or less. Furthermore, frequency
of borrower visits is not mandated, but this final rule states
``periodic borrower visits'' are required.
One commenter asked that the Agency provide in the sub-CDE
operating agreement that, in all decisions and actions with respect to
the servicing and enforcement of the Project Loan, the sub-CDE will do
so in compliance with the requirements imposed upon a ``lender'' under
the regulations. The commenter reasoned that the leverage lender might
also be engaged as the servicing agent for the Project Loan, so that it
could be involved in the servicing and enforcement of the Project Loan
(although due to limitations under the NMTC program, it would not be
permitted to control such matters). According to the commenter, such
contractual rights and obligations could provide the basis on which a
Leverage Lender could be treated as able to carry out its
responsibilities as a ``Lender'' under the Guaranty Program, despite
the limitations described above. However, the commenter added that, for
any such approach to work, the regulations would need to recognize that
responsibilities of the ``Lender'' regarding its ``loan'' can only be
carried out indirectly through the sub-CDE.
Agency's Response: This final rule includes a provision that the
sub-CDE operating agreement allows the investor fund entity approval
rights with respect to certain loan servicing actions undertaken by the
sub-CDE in their loan to the QALICB.
The same commenter as above said that, consistent with the ``look-
through'' provisions in 7 CFR 4279.126(a), the Agency should base the
determination of loss on (1) the amount realized from foreclosure and
collection at the Project Loan level and (2) a hypothetical
distribution of the proceeds to the Investment Fund and then the
leverage lender. The commenter suggested that the guaranty payment
would be made to the Leverage Lender based on that determination. The
commenter said if this approach is acceptable to USDA, the Agency
should clarify the regulations to reflect this.
Agency's Response: A determination of loss is made after
liquidation of all assets. The lender must identify the borrower's
assets in a liquidation plan, and then account for all liquidation
proceeds when requesting payment of a guaranteed loan loss. The asset
of an investor fund entity is its ownership interest in the sub-CDE;
thus, any proceeds paid to the sub-CDE, including and liquidation of
the QALICB assets in a default situation, become assets of the sub-CDE,
and should be used to reduce any investment balance owed to the
investor fund entity.
The same commenter then said that there is nothing in the
regulations that recognizes the forbearance limitations, to which
leverage loans are almost universally subject.
Agency's Response: The forbearance agreement is typical of a NMTC
transaction and must be considered as a credit factor by the lender. A
provision has been added to OneRD that the sub-CDE must include in its
operating agreement that the investor fund entity has approval rights
to certain loan servicing actions by the sub-CDE lender. The intention
of this addition is to allow the guaranteed loan lender the ability to
monitor any forbearance or servicing actions by the sub-CDE lender and
protect their interests in the project.
[[Page 42512]]
Collateral Requirements
The Agency received comments regarding collateral requirement
concerns. One commenter said that while Community Facilities loans are
the most flexible, B&I's loans are the most restrictive. Another
commenter suggested that the Agency adopt FDIC supervisory requirements
on collateral value (primarily on real estate) for consistent
collateral measurement, while another commenter recommended a similar
approach instead of maximum requirements set in B&I regulation, adding
that lenders can be more conservative if necessary (i.e., if
``specialized equipment'' is involved.).
Agency's Response: The Agency took the comment under consideration
and has changed its collateral discounting procedures. Lenders will
discount collateral consistent with sound loan-to-discounted value
practices as long as adequate security still exists for the guaranteed
loan. Satisfactory justification of the discounts being used must be
provided as part of the application package. This change will allow the
lender to customize the discount for each loan, which will enhance the
customer experience of both the lender and applicant.
One commenter suggested that if the non-guaranteed portion of the
loan is more than the required 5-percent Lender of Record hold, that
portion should have additional or separate credit enhancements, such as
a Letter of Credit, another guarantee, or collateral. The commenter
added that this would allow smaller and more rural bank lenders to
participate in larger loans in their communities and the non-guaranteed
portion of the loan can be more easily be sold, traded, or held in the
secondary capital markets.
Agency's Response: The Agency partially agrees. Currently, lenders
can assign the loan guarantee to other parties and may participate the
unguaranteed portion of the loan to other lenders or entities, so long
as the lender of record retains a minimum of 5 percent of the loan
amount. This will continue under the OneRD regulation except that the
minimum amount retained by the lender is raised to 7.5 percent of the
loan amount. To the commenter's request that separate credit
enhancement be allowed on non-guaranteed loan portions over the minimum
retention amount, the Agency specifically prohibits separate collateral
for the guaranteed and unguaranteed portions of the guaranteed loan or
requiring compensating balances or certificates of deposit as that
reduces or possibly eliminates the lender's exposure on the
unguaranteed portion of the guaranteed loan.
General OneRD Comments
New Online System
Many commenters suggested the Agency create more online application
resources and recommended that Rural Development keep up with the
technological advances and industry software that is available on the
market for the financial service industry. One commenter specified
using ``a program similar to Farmer Mac's online application process,
the Mortgagebot program, software solutions used by Moody Analytics and
Wolters Kluwer, the Finastra program.'' Furthermore, commenters said
there should be an online application system that would ``streamline
loan making process, reduce approval time, and save time and money for
lenders and RD.'' Some commenters requested the Agency use a secure,
encrypted, cloud-based system to upload documents for the application.
One commenter, a lender, asked for ``electronic signatures'' to add to
security.
Agency's Response: We agree that our application process should be
modernized, and that this modernization will save time and money for
both the lender and the Agency. With this final rule, the Agency is
developing an online application system--one system for all four
programs included in the OneRD Guaranteed Loan regulation. The system
will automate the application, obligation, loan closing, and servicing
of the guarantee process. The system is being designed to improve the
Lender experience by addressing concerns related to efficiency,
transparency, and consistency that exist in the guarantee programs
today. The new online platform will be used by all Rural Development
offices that process guarantee loan applications under this final rule
establishing the OneRD Guaranteed Loan program. This will save time and
money for both the lender and the Agency as noted in the commenter's
remarks.
Additionally, the Agency is engaged in evaluating online platforms
to address the needs of the guarantee program requirements. The Agency
acknowledges remarks regarding ease of uploading, network support, and
bandwidth. These factors are being considered in the online solution.
We acknowledge the request to allow the online system to be
accessible to multiple people within the lender's organization. The
system will be designed with this feature while still maintaining the
necessary security and integrity of the system.
The new online application system will have a system that automates
the application process, including the ability to upload supporting
application documents into a secure shared system, acknowledging
commenters who suggested a cloud-based system. The online platform will
have a secure and accessible storage system that will be used by all
lenders and Rural Development processing offices. Application forms
will be designed to work across all four programs associated with the
OneRD Guarantee Loan program and will be generated through the online
system. This method should address the commenter's request for a format
that is flexible and specific to the project. Only information relevant
for the application will be entered by the lender.
Rural Development will accept electronic signatures when a wet
signature is not required. At any time during the online application
process, the lender will have access to a Rural Development local
representative to assist them. It is not the intent of the online
application system to replace one-on-one contact between Rural
Development and its customers, but for that contact to be about more
substantive issues.
Regarding communication with applicants, one commenter suggested
the Agency provide a verbal confirmation of eligibility. Another
commenter inquired about a notice of interest determination letter.
Agency's Response: The Agency's new online application system will
allow the lender to view applications in process and track their
status. The system will automatically notify the lender when the Agency
reaches a key decision point (i.e., application is complete,
application is approved, etc.). The system will also generate
correspondence documents to the lender including an interest
determination letter, also known as a preliminary review letter.
Three commenters discussed the need to improve information on the
USDA website regarding guaranteed loan programs under OneRD. Two
commenters suggested revising, updating, and streamlining the USDA
website to improve information about lending requirements across all
programs. The third comment recommended adding a ``chat'' feature to
quickly assist site visitors.
Agency's Response: The OneRD project includes development of a new
online portal for lenders to input loan application information and
service
[[Page 42513]]
their guaranteed loans. In addition, borrowers may use the website to
research available programs, but they will not be allowed to upload an
application because the lenders are the Rural Development customer for
purposes of Guarantee programs. The application process will guide
lenders to what information is required for their specific project,
allow them to upload information, and information will also be uploaded
to the Rural Development legacy systems to ensure consistency of the
information.
At this time, we are not considering adding a ``chat'' feature due
to the implementation and operating costs of that feature. However,
phone numbers for offices in the project state will be readily
available to the user. The application portal will also have a link to
the guaranteed loan regulations located in 7 CFR part 5001.
Some comments were directed toward the current RDApply online
application system for the Water and Environmental program. Some
suggestions included improving the online application process to remove
the burden of paperwork and uploading documents. Others recommended
posting USDA deadlines and status updates for application processing
within RDApply and offering direct contact with a representative.
Agency's Response: These comments referring to the current RDApply
online application system currently used by the Water and Environmental
Programs were considered as the Agency identifies system requirements
for the OneRD Guarantee online application system. The OneRD Guarantee
online application system will be developed specifically for lenders
making application for a OneRD guarantee loan request. This new online
application system will allow the lender to view applications in
process and track their status. In addition, the system will
automatically notify the lender when the Agency reaches a key decision
point (i.e., application is complete, application is approved, etc.).
The online system is accessible to multiple people within the lender's
organization but maintains the necessary security and integrity of the
system.
As stated earlier, at any time during the online application
process, the lender will have access to an RD local representative to
assist them. Again, we note that it is not the intent of the online
application system to replace one-on-one contact between RD and its
customers.
The Agency received comments asking the Agency to develop a
decision tree to assist customers to determine whether to pursue a loan
guarantee or a direct loan. One commenter added that the decision tree
should require RUS to ``encourage private or cooperative lenders to
finance rural and waste disposal facilities'' based on the Consolidated
Farm and Rural Development Act (CONAct) requirement from the 2014 Farm
Bill.
Agency's Response: The Agency understands the commenters' concern
to provide the applicant with program eligibility criteria early in the
application stage. The Agency understands the second commenter's
concern to adhere to the CONAct requirements as well. While we support
the development of a decision tree as suggested, this tool would be
better utilized in an online application format for the Community
Facilities and Water and Environmental direct loan programs.
The Agency received comments that suggested we follow the Small
Business Administration's (SBA) ``10-tab system'' to process loans more
efficiently. Generally, commenters wanted faster decisions on loans and
clear and timely communication.
Agency's Response: As stated earlier, the Agency engaged the
services of a contractor to assist in evaluating online platforms to
address the needs of the guarantee program requirements. The Agency's
new online application system will improve the lender experience by
addressing concerns related to efficiency, transparency, and
consistency that exist in the guarantee programs today. The Agency
evaluated the SBA system in the development of the new online system.
Some commenters expressed concern about rural access to high-speed,
broadband internet, which may hinder access to OneRD's new online
application system.
Agency's Response: While the regulation requires the use of an
online application system, the Agency is aware that not all lenders
will have the capacity to use an online application system and will
allow, on a case-by-case basis, the submission of paper application
packages.
One commenter said that not all States accept electronic forms,
which would be an issue when uploading documents for the OneRD online
application.
Agency's Response: The Agency's proposed online application system
will be used by all Rural Development offices that process guarantee
loan applications under this final rule.
Uniformity of New System and Streamlined Processes
The Agency received comments regarding concerns about transparency
and complications and inconsistencies during loan processing and
approval. Some of the commenters expressed concern that ease and speed
of processing differs between State Offices and when applicants use
more than one RD loan program. One commenter suggested the Agency
develop a standardized closing process checklist to outline all
requirements to issue an LNG and solve this issue.
Agency's Response: In addition to addressing concerns related to
efficiency, transparency, and consistency that exist in the guarantee
programs today, Rural Development has established common processing
timeframes. Staff training will be a significant part of the OneRD roll
out process and consistency will be a common message. The Agency will
create and provide checklists to field staff to ensure a consistent
process across states. The implementation of an on-line application
portal will also improve consistency between offices.
Rural Development acknowledges the third commenter's concern that
the Agency not re-underwrite the lender's package. It is the intent of
OneRD Guarantee that the Agency apply a consistent approach to the
review of the lender's guarantee request to determine the funding
recommendation made by the lender is acceptable and meets the
regulations based on the lender's credit evaluation. The Agency will
further train staff to address this issue.
The Agency acknowledges remarks about general inconsistencies as
well and will consider what internal communication methods it should
use in the future to support the OneRD Guarantee program, so all
processing offices hear a consistent message from each OneRD Guarantee
program area.
One commenter suggested the Agency streamline or simplify the draw
process, which appears to be a comment on the Water and Waste Disposal
direct loan program.
Agency Response: For guarantee loans, the Agency should be
minimally involved with construction draws. There are additional
requirements for draws during the construction phase if the loan note
guarantee is issued prior to the completion of construction and if a
project combines Agency direct and guarantee funding, the more
stringent direct requirements will prevail.
The Agency received additional comments asking to streamline the
application process so that it is easier
[[Page 42514]]
and faster to close loans. Some commenters cited removing the PER
requirement again, while others asked for a more ``clear and concise''
application. One commenter suggested that a ``brief project description
and budget should be sufficient for guaranteed program.'' Another
commenter added that ``additional items needed for individual States
should be included as part of the Conditional Commitment items needed
prior to issuing the Loan Note Guarantee (LNG).'' One comment said that
the ``10-day response time for application process should be
shortened.''
Agency's Response: As part of the initial rollout of the proposed
regulation, the Agency is implementing a completely new application
intake system. The new system will allow us to monitor closely
application submission and processing times and provide consistent
application package content across offices and programs. The proposed
intake system will also provide full service for lenders, negating the
requirement to log into different systems for different aspects of the
guarantee. See Agency response on PERs under subpart D. In addition,
the proposed regulation has pared down the requirements of an
application package to program determined essentials. Ultimately, the
proposed changes will streamline the application process.
One commenter recommended that the Agency use Regional Coordinators
to handle concerns with processing and help lenders navigate the
process to ensure a quick turnaround. The commenter's concern stems
from projects in some states that ``are not processed quickly'' and
``if regional coordinators could serve as mediators for lenders, the
process would flow more smoothly.''
Agency's Response: The Agency has considered this comment.
Unfortunately, this is an internal operations item and cannot be
addressed through regulatory means.
One commenter asked if the OneRD Guaranteed Loan processing time
will be as lengthy as it has been in the past.
Agency's Response: OneRD's goal is to streamline the application,
processing, and servicing requirements for all loan programs within
OneRD, and ultimately provide consistency among Rural Development
guaranteed loan programs. The electronic system the Agency is
developing will increase efficiencies for customers as well as Agency
staff.
Transparency
One commenter recommended the Agency improve communication
throughout the application process so that information can be passed to
borrowers. Another commenter wanted the Agency to increase transparency
during the approval process. A third commenter suggested improving the
speed of the approval process across all programs to enhance
transparency.
Agency's Response: The Agency agrees. Staff training will emphasize
continuing lender communication. The proposed electronic application
process will improve communication with the lender and navigation of
the Agency's approval process.
OneRD's Scope--Inclusion of Other Programs
One commenter suggested the Agency include telecom
(Telecommunications Infrastructure Loan Program) and electric (Electric
Infrastructure Loan Program) as ``rural utilities.''
Agency's Response: RD chose the programs included in this rule
based on the commonalities in their current statutory authorization and
regulatory implementation. The Agency may add other programs in the
future.
Rulemaking Process
The Agency received comments about its rulemaking process. Most of
the commenters were concerned about the public's ability to provide
input regarding this final rule, suggesting that the Agency publish a
proposed or interim rule instead of this final rule. Others suggested
providing more opportunities for the public, specifically lenders, to
engage with the Agency before publishing this final rule. One commenter
was concerned that the Office of General Counsel (OGC) had not yet
approved the OneRD program and this final rule.
Agency's Response: The Agency decided to publish OneRD Guarantee as
a final rule with comment. The Agency published a notice in the Federal
Register on September 5, 2018 (83 FR 45091) announcing five listening
sessions to be held with stakeholders in month of September 2018. The
purpose of the listening session was to gather public input on how to
simplify, improve, and enhance the delivery of our guarantee programs.
The Agency recorded all listening session comments. Stakeholders were
also given the opportunity to submit comments to an email box. All
comments have been reviewed and were taken into consideration as this
final rule was being drafted. This final rule is being published in the
Federal Register with a 60-day comment period. During this period, the
public can view the entire final rule and provide comment. All comments
will be addressed and, if warranted, will result in modifications to
this final rule prior to its effective date. This method of publishing
a final rule with comments will help realize the benefits of a
consolidated regulation quicker than would be achieved by first
publishing a proposed rule. In addition, this final rule followed the
Agency's clearance process, which included OGC review.
OneRD Marketing and Training
The Agency received comments requesting training programs regarding
loan guarantees and additional guidance for offices and lenders for the
various programs under OneRD.
Most commenters asked for lender training and coordination with
State Offices. The commenters also suggested that the Agency should
continue to strengthen the RD programs under OneRD.
Agency's Response: The Agency agrees and has addressed these
concerns along with this final rule. The Agency will be holding
training sessions with RD staff prior to the effective date. Training
needs will continue to be assessed after the OneRD Guarantee final rule
is in effect. The regulation process includes training of not only the
Agency's area and State Offices but also lenders. Implementing an
online application and processing system should help alleviate
inconsistencies that exist in the program today. We are confident that,
with the publication of this final rule, new coordination amongst
programs will occur as well.
Program Launch and Delivery
Some comments discussed the accessibility and rollout of the OneRD
program. Most commenters suggested that the Agency avoid creating a
more centralized regional office model. Commenters added that, while it
may be cost effective to regionalize offices, keeping State Offices in
place helps to maintain efficiency. One commenter suggested support for
state-level staff involvement. Other commenters suggested that the
Agency add more staff and training in certain industries to assist
staff in other states who have never processed certain types of loans.
However, two commenters did recommend decentralizing offices.
Agency's Response: The Agency is looking at all possible options on
how best to deliver all programs. We note that the regulation process
includes training of not only the Agency's area and State Offices but
also lenders.
One commenter said that a lack of responsiveness is burdensome to
the Agency's current processes, resulting in
[[Page 42515]]
a lack of a uniform interpretation of OneRD.
Agency's Response: The Agency appreciates the comment provided.
While the new regulation will outline items to be reviewed, the level
of risk associated with individual loans will always vary to the point
that some require much more review than others do. The Agency will be
providing training to the staff administering the programs and will
emphasize the importance of thorough review of the lender's
underwriting.
One commenter supported the concept of repackaging current Water
and Waste Disposal Direct Loans and converting those loans to
guaranteed loans.
Agency's Response: This final rule will provide one platform across
the main Rural Development guarantee programs. We expect that this will
increase usage of all the programs by providing a common application
and processing base. The Agency cannot repackage existing direct WWD
loans and convert them to guaranteed loans at this time; however,
direct loan borrowers are required to pursue ``graduation'' to
commercial credit when it appears they are able. Refinancing direct
Agency WWD loans is an eligible loan purpose under the guarantee
program and borrowers are encouraged to take advantage of that
provision.
Mission
There were two comments regarding OneRD's mission. One commenter
said that the mission should be to provide capital to rural America.
Agency's Response: Under this final rule, OneRD works to provide
easier, customer-friendly access and increase lender participation,
which will lead to greater access to capital in rural America.
Difference Between Statutory vs. Regulatory Requirements
One commenter asked for clarifications as to the difference between
what is considered statutory and what is considered regulatory.
Agency's Response: Statutory requirements are those passed by
Congress for each program, while the Agency writes regulations to
interpret statutes and provide additional details for program delivery.
Out of Scope
The Agency received some comments that we cannot address with this
final rule because they are outside the scope of this final rule, but
we have considered them. Some commenters asked questions regarding the
direct loan programs, such as the possibility of a graduation or income
requirement for direct loans.
Agency's Response: Direct loan programs, graduation requirements,
and income data sources for determining loan/grant eligibility of the
direct loan program are not within the scope of this final rule.
One commenter inquired about a separate bank account requirement.
Agency's Response: The comment is related to the Community
Facilities Direct loan program and is not within the scope of this
final rule.
A commenter suggested that the Agency does not need a loan program.
Instead, banks should issue the loans operated by USDA.
Agency's Response: The OneRD Guarantee Loan program addresses bank
loans guaranteed by USDA and does not change how loans are distributed.
Finally, a commenter asked about OneRD's impact on lenders.
Agency's Response: At the time of comment, the regulation had not
been released, so no ``unintended consequences'' had been identified.
While the Agency does not believe there will be any unintended
consequences, we do believe there will be many benefits for lenders to
having a consolidated regulation. This rule will provide a ``one stop''
shop for everything from eligibility to loss claims in any of the four
programs. OneRD will provide clarity on what are the common
requirements and what is needed for only a specific program, this
should make it easier to apply for a guarantee. While the four
guaranteed programs will remain independent, since they will share a
common platform, it will allow lenders to move more easily from program
to program and expand their lending into other programs.
While the rule provides guidance, it moves, in many areas, from
dictating form and lender procedures to relying on lender specific and
industry standard lending policies and practices, which allows the
lender to spend less time on form and more time on the details of loan
making. The regulation clarifies Agency requirements, such as when
appraisals or feasibility studies are required, which reduces the time
lenders must spend determining applicability or worse, revising or
completely redoing a document that was completed incorrectly.
Most of all, the rule provides, where allowable, consistency
between the four programs. This allows the Agency to provide a more
consistent experience for lenders and borrower saving everyone time and
frustration.
VI. Regulatory Impact Analysis
A. Executive Orders 12866 and 13563
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches to maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility.
This rule has been determined to be significant and was reviewed by
the Office of Management and Budget under Executive Order 12866. In
accordance with Executive Order 12866, the Agency conducted a
Regulatory Impact Analysis, outlining the costs and benefits of
implementing this program in rural America. The complete analysis is
available in Docket No. RUS-19-Agency-0030. This analysis consists of a
statement of need for a unified Rural Development (RD) guaranteed loan
program, a baseline description of the current status of the four
guaranteed loan programs administered by RD that are being consolidated
under the unified RD guaranteed loan program, a summary of the
provisions of the unified guaranteed loan program and alternative
approaches that were considered, a list of the affected parties, and an
analysis of the benefits and costs.
Much of the analysis is necessarily descriptive of the anticipated
effects of this final rule. Benefits are described qualitatively, with
some indication of the relative potential size. Most of the costs are
quantified. Consequently, the analysis does not provide the exact
magnitude of the resulting benefits and costs. Despite this, RD expects
this final rule will provide cost savings and net benefits compared to
the current situation by improved program and Agency management of the
risks associated with the guaranteed loans that will be made under the
unified guaranteed loan program.
B. Unfunded Mandates Reform Act
This final rule contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for State, local, and tribal
governments or the private sector. Thus, this rule is not subject to
the requirements of sections 202 and 205 of the UMRA.
[[Page 42516]]
C. Environmental Impact Statement
This final rule has been reviewed in accordance with 7 CFR part
1970 ``Environmental Program.'' Rural Development has determined that
this action was analyzed and meets the criteria established in 7 CFR
1970.53(f) and does not have any extraordinary circumstances and the
action does not have a significant effect on the human environment, and
therefore neither an Environmental Assessment nor an Environmental
Impact Statement is required.
D. Executive Order 12988, Civil Justice Reform
This final rule has been reviewed under Executive Order 12988
(Civil Justice Reform). The Agency has determined that this rule meets
the applicable standards provided in section 3 of the Executive order.
In addition, all State and local laws and regulations that conflict
with this rule will be preempted. No retroactive effect will be given
to this rule.
E. Executive Order 13132, Federalism
The policies contained in this final rule do not have a substantial
direct effect on States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government. Nor does this
rule impose substantial direct compliance costs on state and local
governments. Therefore, consultation with the states is not required.
F. Regulatory Flexibility Act Certification
The Regulatory Flexibility Act (5 U.S.C. 601-602) (RFA) generally
requires an agency to prepare a regulatory flexibility analysis of any
rule subject to notice and comment rulemaking requirements under the
Administrative Procedure Act (``APA'') or any other statute. This rule,
however, is not subject to the APA under 5 U.S.C. 553(a)(2) and 5
U.S.C. 553(b)(3)(A) nor any other statue.
G. Executive Order 12372, Intergovernmental Consultation
This final rule is excluded from the scope of Executive Order 12372
(Intergovernmental Consultation), which may require a consultation with
State and local officials. See the final rule related notice entitled,
``Department Programs and Activities Excluded from Executive Order
12372'' (50 FR 47034).
H. Executive Order 13175, Consultation and Coordination With Indian
Tribal Governments
This rule has been reviewed in accordance with the requirements of
Executive Order 13175, Consultation and Coordination with Indian Tribal
Government. Executive Order 13175 requires Federal agencies to consult
and coordinate with tribes on a government-to-government basis on
policies that have tribal implications, including regulations,
legislative comments or proposed legislation, and other policy
statements or actions that have substantial direct effects on one or
more Indian tribes, on the relationship between the Federal Government
and Indian tribes or on the distribution of power and responsibilities
between the Federal Government and Indian tribes.
The USDA's Office of Tribal Relations (OTR) has assessed the impact
of this rule on Indian tribes and concluded that this rule does not
have substantial direct effects on one or more Indian tribes, on the
relationship between the Federal Government and Indian tribes or on the
distribution of power and responsibilities between the Federal
Government and Indian tribes. OTR has determined that tribal
consultation under E.O. 13175 is not required at this time.
If consultation is requested, OTR will work with the RD to ensure
quality consultation is provided.
I. Programs Affected
The Catalog of Federal Domestic Assistance (CFDA) numbers assigned
to this program are CFDA 10.760, Water and Waste Disposal Systems for
Rural Communities; CFDA 10.766, Community Facilities Loans and Grants;
10.768, Business and Industry Loans; and CFDA 10.775, Renewable Energy
Systems and Energy Efficiency Improvements Program.
J. Catalog of Federal Domestic Assistance
The CFDA numbers assigned to the 4 programs within this rule are:
10.766 for Community Facility Programs, 10.760 for Water and Waste
Disposal Programs, 10.768 for Business and Industry Programs and 10.868
for Rural Energy for America Program. The Catalog is available on the
internet at https://beta.sam.gov. The SAM.gov website also contains a
PDF file version of the Catalog that, when printed, has the same layout
as the printed document that the Government Publishing Office (GPO)
provides. GPO prints and sells the CFDA to interested buyers. For
information about purchasing the Catalog of Federal Domestic Assistance
from GPO, call the Superintendent of Documents at 202-512-1800 or toll
free at 866-512-1800, or access GPO's online bookstore at http://bookstore.gpo.gov.
K. Paperwork Reduction Act and Recordkeeping Requirements
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
Chapter 35, as amended), RD invites comments on this information
collection for which approval from the Office of Management and Budget
(OMB) will be requested. These requirements have been approved by
emergency clearance under OMB Control Number 0572-0155. Upon approval
of this new final rule information collection package, RD will
discontinue the following information collection packages: Community
Facility Program (OMB No. 0570-0137), Water and Waste Disposal Program
(OMB No. 0570-0122), Business and Industry Program, (OMB No. 0570-
0069), and Renewable Energy Systems and Energy Efficiency Improvements
Program, (OMB No. 0570-0067).
Comments must be received by September 14, 2020.
Comments are invited on (a) whether the collection of information
is necessary for the proper performance of the functions of the Agency,
including whether the information will have practical utility; (b) the
accuracy of the Agency's estimate of burden including the validity of
the methodology and assumption used; (c) ways to enhance the quality,
utility and clarity of the information to be collected; and (d) ways to
minimize the burden of the collection of information on those who are
to respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques on
other forms of information technology.
Title: 7 CFR 5001, OneRD Guarantee Loan Program.
OMB Control Number: 0572-0155.
Abstract: Rural Development is implementing a new consolidated
guaranteed loan platform. The new guaranteed loan platform would
combine the following four existing guaranteed loan regulations into a
consolidated rule: (1) The Community Facility Program, (2) the Water
and Waste Disposal Program, (3) the Business and Industry Program, and
(4) the Renewable Energy Systems and Energy Efficiency Improvements
Program under Title IX, Section 9006 of the Farm Security and Rural
Investment Act of 2002 (FSRIA 2002). These programs provide loan
guarantees for a
[[Page 42517]]
variety of projects intended to improve the economies of rural America.
The information required under this final rule is similar to much
of the information currently being required under the four separate
regulations. Under those four separate regulations, the current
information being collected is approved under OMB control numbers 0570-
0067, 0570-0069, 0572-0122, and 0575-0137. The final rule, however,
requests some new information from lenders. The two primary examples
are: (1) Lenders are required to supply information to Rural
Development to be approved for participation in the program, and (2)
lenders are required to more frequently report loans that are in
default. On the other hand, the final rule does not include certain
information previously requested. This is most evident for the
Renewable Energy Systems and Energy Efficiency Improvements guaranteed
loan program, where, under the final rule, technical reports are
required only for higher cost renewable energy systems projects. This
is because renewable energy projects of less than $200,000 are less
complex, so the technical reports for these projects have only marginal
value, and the energy audit requirements from energy efficiency
improvement projects are sufficient so that separate technical reports
also have only marginal value. The final rule creates a single set of
common forms that lenders can use across all four programs, thereby
creating efficiencies in reporting. On balance, the information
requested to support the consolidated program is estimated to reduce
burden and cost to lenders and borrowers compared to the information
requested to support all four individual guaranteed loan programs
combined.
As noted in the preceding paragraph, the information requirements
contained in this final rule require information from lenders and
borrowers. Rural Development requires this information to make prudent
lending decisions regarding the eligibility of projects, borrowers, and
lenders, to reduce the risks associated with making loan guarantees, to
ensure compliance with the final rule and relevant statutory
requirements, to ensure that the funds obtained from the Federal
Government are used appropriately, and to effectively monitor the
borrowers and lenders to protect the financial interests of the Federal
Government. In summation, this collection of information is necessary
to implement the consolidated guaranteed loan provisions in this final
rule.
The following estimates are based on the average over the first 3
years the program is in place.
Estimate of Burden: Public reporting burden for this collection of
information is estimated to average 3.42 hours per response.
Respondents: Rural developers, farmers and ranchers, rural
businesses, public bodies, local governments, lenders.
Estimated Number of Respondents: 740.
Estimated Number of Responses per Respondent: 17.
Estimated Number of Responses: 12,380.
Estimated Total Annual Burden (hours) on Respondents: 50,242.
Copies of this information collection may be obtained from Thomas
P. Dickson, Regulatory Division Team 2, Rural Development Innovation
Center, U.S. Department of Agriculture, 1400 Independence Ave. SW, Stop
1522, Washington, DC 20250; telephone, 202-690-4492; email,
[email protected]
All responses to this information collection and recordkeeping
notice will be summarized and included in the request for OMB approval.
All comments will also become a matter of public record.
L. E-Government Act Compliance
Rural Development is committed to complying with the E-Government
Act of 2002, which requires Government agencies in general to provide
the public the option of submitting information or transacting business
electronically to the maximum extent possible.
M. Civil Rights Impact Analysis
Rural Development has reviewed this final rule in accordance with
USDA Regulation 4300-4, Civil Rights Impact Analysis,'' to identify any
major civil rights impacts this final rule might have on program
participants on the basis of age, race, color, national origin, sex or
disability. After review and analysis of this final rule and available
data, it has been determined that based on the analysis of the program
purpose, application submission and eligibility criteria, issuance of
this final rule will not likely adversely nor disproportionately impact
very low, low and moderate-income populations, minority populations,
women, Indian tribes, or persons with disability, by virtue of their
race, color, national origin, sex, age, disability, or marital or
familial status.
List of Subjects
7 CFR Part 1779
Loan programs, Waste treatment and disposal, Water supply.
7 CFR Part 3575
Loan programs-agriculture.
7 CFR Part 4279
Loan programs-business, Reporting and recordkeeping requirements,
Rural areas.
7 CFR Part 4287
Loan programs-business, Reporting and recordkeeping requirements,
Rural areas.
7 CFR Part 5001
Business and industry, Community facility, Energy efficiency
improvement, Loan programs, Renewable energy, Rural areas, Rural
development, Water and waste disposal.
For the reasons set forth in the preamble, under the authority at 5
U.S.C. 301 and 7 U.S.C. 1989, Chapters XVII, XXXV, and XLII of title 7
of the Code of Federal Regulations are amended and Chapter L is
established as follows:
Chapter XVII--Rural Utilities Service, Department of Agriculture
PART 1779--[REMOVED AND RESERVED]
0
1. Under the authority of 5 U.S.C. 301 and 7 U.S.C. 1989, remove and
reserve part 1779, consisting of Sec. Sec. 1779.1 through 1779.100.
Chapter XXXV--Rural Housing Service, Department of Agriculture
PART 3575--[REMOVED AND RESERVED]
0
2. Under the authority of 5 U.S.C. 301 and 7 U.S.C. 1989, remove and
reserve part 3575, consisting of Sec. Sec. 3575.1 through 3575.100.
CHAPTER XLII--Rural Business-- Cooperative Service and Rural Utilities
Service, Department of Agriculture
PART 4279--GUARANTEED LOANMAKING
0
3. The authority citation for part 4279 continues to read as follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989.
Subpart A--[Removed and Reserved]
0
4. Remove and reserve subpart A, consisting of Sec. Sec. 4279.1
through 4279.100.
[[Page 42518]]
Subpart B--[Removed and Reserved]
0
5. Remove and reserve subpart B, consisting of Sec. Sec. 4279.101
through 4279.200.
PART 4287--SERVICING
0
6. The authority citation for part 4287 continues to read as follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1932(a); 7 U.S.C. 1989.
Subpart B--[Removed and Reserved]
0
7. Remove and reserve subpart B, consisting of Sec. Sec. 4287.101
through 4287.200.
PART 5001--GUARANTEED LOANS
0
8. Add chapter L, consisting of part 5001 to subtitle B, to read as
follows:
Chapter L--Rural Business--Cooperative Service, Rural Housing Service,
and Rural Utilities Service, Department of Agriculture
PART 5001--GUARANTEED LOANS
Subpart A--General Provisions
Sec.
5001.1 General.
5001.2 Structure.
5001.3 Definitions.
5001.4 Exception authority.
5001.5 Appeal and review rights.
5001.6 General Lender responsibilities.
5001.7 Agency's special initiatives.
5001.8 Approvals, regulations, and forms.
5001.9 Standards for financial information.
5001.10 Federal Register notices and amendments.
5001.11-5001.99 [Reserved]
5001.100 OMB control number.
Subpart B--Eligibility Provisions
5001.101 Introduction.
5001.102 Project eligibility--general.
5001.103 Eligible CF projects and requirements.
5001.104 Eligible WWD projects and requirements.
5001.105 Eligible B&I projects and requirements.
5001.106 Eligible REAP--Renewable Energy System (RES) projects and
requirements.
5001.107 Eligible REAP--Energy Efficiency Improvement (EEI) projects
and requirements.
5001.108 Eligible REAP--Energy Efficient Equipment and Systems (EEE)
projects and requirements.
5001.109-5001.114 [Reserved]
5001.115 Ineligible projects--general.
5001.116 Ineligible CF projects.
5001.117 Ineligible WWD projects.
5001.118 Ineligible B&I projects.
5001.119 Ineligible REAP projects.
5001.120 [Reserved]
5001.121 Eligible uses of loan funds.
5001.122 Ineligible uses of loan funds.
5001.123-5001.125 [Reserved]
5001.126 Borrower eligibility.
5001.127 Borrower ineligibility conditions.
5001.128-5001.129 [Reserved]
5001.130 Lender eligibility requirements.
5001.131 Lender's agreement.
5001.132 Maintenance of approved lender status.
5001.133-5001.139 [Reserved]
5001.140 Cooperative stock/cooperative equity.
5001.141 New Markets Tax Credit.
5001.142-5001.200 [Reserved]
Subpart C--Origination Provisions
5001.201 General origination requirements.
5001.202 Lender's credit evaluation.
5001.203 Appraisals.
5001.204 Personal, partnership, and corporate guarantees.
5001.205 General project monitoring requirements.
5001.206 Compliance with USDA Departmental Regulations, Policies,
and other Federal laws.
5001.207 Environmental responsibilities.
5001.208 Conflicts of interest.
5001.209-5001.300 [Reserved]
Subpart D--Guarantee Application Provisions
5001.301 Beginning the application process.
5001.302 Preliminary eligibility review.
5001.303 Applications for loan guarantee.
5001.304 Specific application requirements for CF projects.
5001.305 Specific application requirements for WWD projects.
5001.306 Specific application requirements for B&I projects.
5001.307 Specific application requirements for REAP projects.
5001.308-5001.314 [Reserved]
5001.315 Application evaluation and award provisions.
5001.316 CF project priority point system and reservation of funds.
5001.317 WWD project priority points system.
5001.318 B&I project priority points system.
5001.319 REAP project priority points system.
5001.320-5001.400 [Reserved]
Appendix A to Subpart D of Part 5001--Feasibility Study Components
Appendix B to Subpart D of Part 5001- Financial Feasibility Reports
Appendix C to Subpart D of Part 5001--Technical Reports for Energy
Efficiency Improvement (EEI) Projects with Total Project Costs of
more than $80,000
Appendix D to Subpart D of Part 5001--Technical Reports for
Renewable Energy System (RES) Projects with Total Project Costs of
Less Than $200,000 but More Than $80,000
Appendix E to Subpart D of Part 5001--Technical Reports for
Renewable Energy System (RES) Projects with Total Project Costs of
$200,000 and Greater
Subpart E--Loan and Guarantee Provisions
Loan Provisions
5001.401 Interest rate provisions.
5001.402 Term length, loan schedule, repayment.
5001.403 Lender fees.
5001.404-5001.405 [Reserved]
5001.406 Guaranteed loan amounts.
5001.407 Percent of guarantee.
5001.408 Participation or assignment of guaranteed loan.
5001.409-5001.449 [Reserved]
Guarantee Provisions
5001.450 General.
5001.451 Conditional commitment.
5001.452 Loan closing and conditions precedent to issuance of loan
note guarantee.
5001.453 Issuance of the loan note guarantee.
5001.454 Guarantee fee.
5001.455 Periodic guarantee retention fee.
5001.456 Other fees.
5001.457 Changes prior to loan closing.
5001.458 Other Federal, State, and local requirements.
5001.459 Replacement of loan note guarantee and assignment guarantee
agreement.
5001.460-5001.500 [Reserved]
Subpart F--Servicing Provisions
5001.501 General.
5001.502 Oversight and monitoring.
5001.503 REAP RES or EEI project completion requirements.
5001.504 Financial reports.
5001.505 Collateral inspection and release.
5001.506 Loan transfers and assumptions.
5001.507 Lender Transfer.
5001.508 Mergers.
5001.509 Servicing fees.
5001.510 Subordination of lien position.
5001.511 Repurchases from holders.
5001.512 Additional expenditures and loans.
5001.513 Interest rate changes.
5001.514 Lender failure.
5001.515 Default by borrower.
5001.516 Protective advances.
5001.517 Liquidation.
5001.118 [Reserved]
5001.519 Bankruptcy.
5001.520 Litigation.
5001.521 Loss calculations and payment.
5001.522 Future recovery.
5001.523 Property acquired by the lender.
5001.524 Termination of loan note guarantee.
5001.525-5001.600 [Reserved]
Authority: 5 U.S.C. 301; 7 U.S.C. 1926(a); 7 U.S.C. 1932(a); and
7 U.S.C. 8107.
Subpart A--General Provisions
Sec. 5001.1 General.
(a) This part contains the regulations for Community Facilities,
Water and Waste Disposal, Business and Industry, and Rural Energy for
America Program loans guaranteed by the Agency and applies to lenders,
holders, borrowers, and other parties involved in making, guaranteeing,
holding, servicing, and liquidating such loans. The loan guarantee
programs covered by this regulation are more fully described as:
(1) Community Programs Guaranteed Loans (5 U.S.C. 301 and 7 U.S.C.
1989) as authorized by Section 306(a)(1) of the
[[Page 42519]]
Consolidated Farm and Rural Development Act, 7 U.S.C. 1926(a)(1), as
administered by the Rural Housing Service (RHS), herein after referred
to as CF.
(2) Water and Waste Disposal Program Guaranteed Loans (5 U.S.C.
301, 7 U.S.C. 1989, and 16 U.S.C. 1005) as authorized by Section
306(a)(1) of the Consolidated Farm and Rural Development Act, 7 U.S.C.
1926(a)(1), as administered by the Rural Utilities Service (RUS),
herein after referred to as WWD.
(3) Business and Industry Guaranteed Loans (7 U.S.C. 1932) as
authorized by Section 310B, Business and Industry Direct and Guaranteed
Loans, of the Consolidated Farm and Rural Development Act, 7 U.S.C.
1932, as administered by the Rural Business-Cooperative Service (RBCS),
herein after referred to as B&I.
(4) Rural Energy for America Program Guaranteed Loans (5 U.S.C.
301, and 7 U.S.C. 8107) as authorized by Section 9007, Title IX of the
Food, Conservation, and Energy Act of 2008, as administered by the
Rural Business-Cooperative Service (RBCS), herein after referred to as
REAP.
(b) The applicability of the provision of this part for processing
and approving applications and for servicing guaranteed loans depend on
when a complete application is received. The Agency will process and
approve applications, and service guaranteed loans according to the
provisions of this part for all complete guaranteed loan applications
that it receives on or after October 1, 2020, including guaranteed loan
applications submitted under any of the programs whose authorization is
identified in this section. All complete Applications received before
October 1, 2020 will be processed and awarded and guaranteed loans
serviced in accordance with the existing regulatory provisions in
effect at the complete application date for the program under which the
Application was submitted.
Sec. 5001.2 Structure.
This part is divided into six subparts as described in paragraphs
(a) through (f) of this section. The provisions are applicable to each
guaranteed loan made under this part, except as may be otherwise
indicated. This part also contains several appendices as identified in
paragraph (g) of this section.
(a) Subpart A. Subpart A contains provisions that are applicable to
each guaranteed loan made under this part, except as may be otherwise
indicated. Topics covered include definitions; exception authority;
appeal and review rights; general lender responsibilities; special
initiatives; approvals, regulations, and forms; and standards for
financial information.
(b) Subpart B. This subpart contains provisions for determining
project, borrower, and lender eligibility that are applicable to each
guaranteed loan made under this part. It also contains a list of
eligible and ineligible uses of loan funds, ineligible Projects and
conditions that would make an otherwise eligible borrower ineligible.
The lender's agreement is addressed as well as maintenance of approved
lender status.
(c) Subpart C. This subpart contains provisions for general
origination requirements, credit evaluation, appraisals, various types
of guarantees, monitoring requirements, compliance with other laws,
environmental responsibilities, and conflicts of interest that are
applicable to each guaranteed loan made under this part.
(d) Subpart D. This subpart contains provisions relating to
applications for a Loan Guarantee under this part, including
preliminary eligibility reviews, the application process, Application
evaluation, and the application award processes that are applicable to
each Guaranteed Loan made under this part.
(e) Subpart E. This subpart contains loan and guarantee provisions
that are applicable to each guaranteed loan made under this part. Loan
provisions cover interest rates, term length, loan schedule, repayment,
lender fees, loan amounts, percentage of guarantee, and sale or
assignment of a guaranteed loan. Guarantee provisions cover the
conditional commitment, conditions precedent to issuing the loan note
guarantee, the issuance of the loan note guarantee, guarantee and other
fees, replacement of documents, borrower reorganizations, and other
legal requirements.
(f) Subpart F. This subpart applies to provisions for servicing the
loans guaranteed under this part, including oversight, monitoring and
reporting requirements and project completion requirements that are
applicable to each guaranteed loan made under this part, except as may
be otherwise indicated. Servicing topics covered include audits and
financial reports; collateral; loan transfers and assumptions; lender
transfers; mergers; servicing fees; subordinations of lien position;
repurchases; additional expenditures and loans; interest rate changes;
lender failures; borrower defaults; protective advances; liquidation;
bankruptcy; litigation; loss calculations and payments; future
recovery; property acquired by the lender; and termination of the loan
note guarantee.
(g) Appendices. These appendices provide specific information on
various reports associated with applying for a loan guarantee under
this part.
Sec. 5001.3 Definitions.
The following definitions are applicable to the capitalized terms
used in this part.
Administrator means the Administrator of the Rural Housing Service,
the Rural Utilities Service, or the Rural Business-Cooperative Service
(or the applicable Service's successor), as applicable, within the
Rural Development mission area of the U.S. Department of Agriculture
(USDA).
Affiliates means persons who control or have the power to control
another entity, or a third party or parties that control or have the
power to control both.
Agency means USDA Rural Development, which includes the Rural
Housing Service; the Rural Utilities Service; and the Rural Business-
Cooperative Service or their successors.
Agricultural producer means a person, including non-profits,
directly engaged in the production of agricultural products through
labor management and operations, including the cultivating, growing,
and harvesting plants and crops (including farming); breeding, raising,
feeding, or housing of livestock (including ranching); forestry
products; hydroponics; nursery stock; or aquaculture, whereby 50
percent or greater of their gross income is derived from the
operations. The percentage is calculated as the average of gross
agricultural operations income of the concern divided by the gross non-
farm income of the concern for the five most recent years. If the
concern has been operation for less than 60 months but for at least 12
months, use average gross agricultural operations income and gross non-
farm income for as long as the concern has been in operation.
Agricultural production means the cultivation, growing, or
harvesting of plants and crops (including farming) breeding, raising,
feeding, or housing of livestock (including ranching); forestry
products, hydroponics, or nursery stock; or aquaculture.
Anaerobic digester means a renewable energy system that uses animal
waste or other renewable biomass and may include other organic
substrates to produce biogas that is sold in a gaseous or compressed
liquid state or used to produce thermal or electrical energy.
Applicant lender debt means an existing debt owed by a borrower to
the
[[Page 42520]]
same lender that is applying for or has received the Agency guarantee.
Appraisal surplus means the excess between the market value of an
asset and its cost or depreciated book value when the market value is
higher.
Architectural report means a report, prepared by a professional,
licensed architect, or other qualified party that describes the
existing situation, analyzes alternatives and proposes a specific
course of action from an architectural perspective.
Arm's length transaction means a transaction in which the buyer and
seller act independently and have no relationship to each other. The
concept of an arm's length transaction allows the market to ensure that
both parties in the deal are acting in their own self-interest and are
not subject to any pressure or duress from the other party.
Assignment guarantee agreement means a signed, Agency-approved
agreement between the Agency, the lender, and the holder setting forth
the terms and conditions of an assignment of a guaranteed portion of a
loan.
Biofuel means a fuel derived from renewable biomass.
Biogas means a gaseous fuel (including landfill and sewage waste
treatment gas) derived from the degradation and decomposition of
renewable biomass.
Bond means a form of debt security in which the authorized issuer
(borrower) owes the bond holder (lender) a debt and is obligated to
repay the principal and interest (coupon) at a later date(s)
(maturity). An explanation of the type of bond and other bond
stipulations must be attached to the bond issuance.
Borrower means the person that borrows, or seeks to borrow, money
from the lender (including any party or parties liable for the
guaranteed loan except guarantors) through a loan guaranteed under this
part.
Business plan means a comprehensive document that clearly describes
the borrower's ownership structure and management experience including,
if applicable, discussion of a parent company, any subsidiaries and
affiliates of the borrower and discussion of how the borrower will
operate the proposed project. If a business or industry is in decline
or financial distress, the business plan must describe in detail how
the project differs from the current industry trends or improves the
borrower's financial position.
Byproduct means an incidental or secondary product, regardless of
whether it has a readily identifiable commercial use or value,
generated under normal operations of the proposed Project that can be
reasonably measured and monitored.
Certificate of incumbency means an Agency-approved form used to
validate authenticity of Agency representatives' signature and title.
Collateral means the asset(s) pledged by the borrower to the lender
as security for the guaranteed loan.
Commercially available means a system that meets the requirements
of either paragraph (1) or (2) of this definition.
(1) A domestic or foreign system that:
(i) Has both a proven and reliable operating history and proven
performance data for at least one year specific to the use and
operation to the proposed application;
(ii) Is based on established design and installation procedures and
practices and is replicable;
(iii) Has professional service providers, trades, large
construction equipment providers, and labor who are familiar with
installation procedures and practices;
(iv) Has proprietary and balance of system equipment and spare
parts that are readily available;
(v) Has service that is readily available to properly maintain and
operate the system; and
(vi) Has an existing established warranty that is valid in the
United States for major parts and labor; or
(2) A domestic or foreign system that has been certified by a
recognized industry organization whose certification standards are
acceptable to the Agency.
Complete application means an application that contains all parts
necessary for the Agency to determine borrower and project eligibility,
the financial feasibility and technical merit of the project, and
contains sufficient information to determine a priority score for the
application, if applicable.
Conditional commitment means an Agency-approved form in which the
Agency agrees that, in accordance with applicable provisions of the
program regulations contained in this part and related forms, it will
execute the loan note guarantee, subject to the conditions and
requirements specified in applicable provisions of the program
regulations contained in this part and in the conditional commitment
itself.
Conflict of interest means a situation in which a person has
personal, professional, or financial interests that prevent, or appears
to prevent the person from acting impartially. For purposes of this
part, conflict of interest also includes, but is not limited to:
(1) A person acting as a compensated agent of the borrower and the
lender on the same guaranteed loan,
(2) Distribution or payment of guaranteed loan funds to an
individual owner, partner, stockholder, or member of the borrower, or
to a beneficiary or immediate family member of the borrower;
(3) Refinancing debt that is owned by a loan packager, broker, or
referral agent or its affiliates.
Cooperative means an entity that is legally chartered by the State
in which it operates as a cooperatively-operated business, or an entity
that is not legally chartered as a cooperative but is owned and
operated for the benefit of its members, with returns of residual
earnings paid to such members on the basis of patronage.
Credit evaluation means the analysis and evaluation by the lender
of the credit factors associated with each application to ensure loan
repayment through the use of credit documentation procedures and an
underwriting process that is consistent with industry standards and the
lender's written policy and procedures.
Debt Collection Improvement Act means the Debt Collection
Improvement Act of 1996, 31 U.S.C. 3701 et seq.
Debt service coverage ratio means the ratio obtained when taking
earnings before interest, taxes, depreciation, and amortization less
reasonably expected replacement capital expenditures divided by the
annual debt service (principal and interest payments) of the borrower.
Default means the condition that exists when a borrower is in non-
compliance under the terms of any of the promissory notes, the loan
agreements, security documents, program regulations, or other documents
evidencing or collateralizing the loan. Default can be a monetary or
non-monetary default.
Deficiency judgment means a monetary judgment rendered by a court
of competent jurisdiction after foreclosure and liquidation of all
collateral securing the loan.
Delinquency means a situation that exists when a scheduled loan
payment on a guaranteed loan made under this part is more than 30
calendar days past due and cannot be cured within the next 30 calendar
days.
Departmental regulations means the regulations of the Agency's
Office of Chief Financial Officer (or successor office) as codified in
2 CFR chapter IV.
Eligible project costs means those expenses approved by the Agency
for the project as eligible uses of funds.
[[Page 42521]]
Energy assessment means an Agency-approved report assessing energy
use, cost, and efficiency by analyzing energy bills and surveying the
target building and/or equipment sufficiently to provide an Agency-
approved energy assessment.
Energy assessor means a qualified consultant who has at least 3
years of experience and completed at least five energy assessments or
energy audits on similar type projects and who adheres to generally
recognized engineering principles and practices.
Energy audit means a comprehensive report that meets an Agency-
approved standard prepared by an energy auditor or an individual
supervised by an energy auditor that documents current energy usage;
recommended potential improvements (typically called energy
conservation measures) and their costs; energy savings from these
improvements; dollars saved per year; and simple payback. The
methodology of the energy audit must meet professional and industry
standards. The final energy audit must be validated and signed off by
the energy auditor who conducted the audit or by the supervising energy
auditor of the individual who conducted the audit, as applicable.
Energy auditor means a qualified consultant that meets one of the
following criteria:
(1) A certified energy auditor certified by the Association of
Energy Engineers;
(2) A certified energy manager certified by the Association of
Energy Engineers;
(3) A licensed professional engineer in the State in which the
audit is conducted with at least 1 year of experience and who has
completed at least two similar type energy audits; or
(4) An individual with a 4-year engineering or architectural degree
with at least three years of experience and who has completed at least
five similar type energy audits.
Energy efficiency improvement (EEI) means improvements to or
replacement of an existing building or systems, or equipment that
reduces measurable energy consumption on an annual basis.
Energy efficient equipment and systems (EEE) means equipment or
systems for agricultural production or processing that exceed any of
the following standards:
(1) Energy efficiency building codes, if available;
(2) Federal or State energy efficiency standards, if available;
(3) Energy efficiency standards determined appropriate by the
Secretary. If no codes or standards described in paragraphs (1) through
(3) of this definition apply to the EEE proposed, then the Secretary
shall require such equipment or system to meet the same efficiency
measurement as the most efficient available equipment or system in the
market and the Secretary shall not provide such a loan guarantee for
the purchase and installation of any energy efficient equipment or
system unless more than one type of such equipment or system is
available in the market.
Engineering documentation means a document, normally prepared by
the borrower's consulting engineer or other qualified party, that
describes the existing system, analyzes alternatives, and proposes a
specific course of action from an engineering perspective.
Essential community facility means a public improvement, operated
on a non-profit basis, needed for the orderly development of a rural
community where the rural community is a city or town, or its
equivalent county or multi-county area. The term ``facility'' refers to
both the physical structure financed, and the resulting service
provided to rural residents or rural businesses. Facilities may
include, but are not be limited to, courthouses, community centers,
libraries, firehouses, health care, education, transportation, and
industrial parks. An industrial park consists of land and the necessary
access ways and utilities to the site, but not improvements erected on
such site.
Existing business means a business that has been in operation for
at least one full year. The following will be treated as existing
businesses provided there is not a significant change in operations of
the existing business: Mergers by an existing business with a new or
existing businesses, a change in the business name, or a new business
and an existing business applying as co-borrowers,
Farmer or rancher cooperative means an entity that is owned and
controlled by agricultural producers and that is incorporated, or
otherwise recognized by the State in which it operates as a
cooperatively-operated business or an entity that is not legally
chartered as a cooperative but is owned and operated for the benefit of
its members, with returns of residual earnings paid to such members on
the basis of patronage.
Feasibility study means a report including an opinion or finding
conducted by an independent qualified consultant(s) evaluating the
economic, market, technical, financial, and management feasibility of
the proposed project or operation in terms of its expectation for
success as outlined in appendix A to subpart D of this part.
Federal debt means debt owed to the Federal Government that is
subject to collection under the Debt Collection Improvement Act.
Federal fiscal year means the 12-month period beginning October 1
of each year and ends on September 30 of the following year; it is
designated by the calendar year in which it ends.
Final loss claim means the Agency's payment of a final settlement
amount with the lender after the collateral is liquidated or after
settlement and compromise actions have been completed and as further
set forth in Sec. 5001.521(d)(3)(e).
Financial feasibility means the ability of a project to achieve
sufficient income, credit, and cash flow to financially sustain the
project over the long term and meet all debt obligations.
Future recovery means funds to be collected by the lender after a
final loss claim is processed as set forth in Sec. 5001.522.
Geothermal direct generation means a system that uses thermal
energy directly from a geothermal source.
Geothermal electric generation means a system that uses thermal
energy from a geothermal source to produce electricity.
Guaranteed loan means a loan made and serviced by a lender for
which the Agency and lender have entered into a lender's agreement and
for which the Agency has issued a loan note guarantee. Unless otherwise
specified, guaranteed loan refers to a loan that the Agency has
guaranteed under this Part.
Guarantor means a person giving assurance to the Agency under an
Agency-approved written agreement that the borrower's obligations will
be fulfilled and promising repayment of a guaranteed loan if the
borrower should default.
Holder means a person, other than the lender, who owns all or part
of the guaranteed portion of the guaranteed loan with no servicing
responsibilities.
Hospital. (1) For the purpose of refinancing rural hospital debt in
accordance with Sec. 5001.102(d)(5), hospital means the following
types of facilities defined in the Social Security Act, Section 1861
(42 U.S.C. 1395x):
(i) Hospital (section 1861(e)).
(ii) Psychiatric hospital (section 1861(f)).
(iii) Long-term care hospital (section 1861(ccc)); and shall also
include the following other provider types defined in the Social
Security Act, Section 1861 (42 U.S.C. 1395x):
(A) Critical access hospital (section 1861(mm)(1)).
(B) Religious nonmedical health care institution (section
1861(ss)(1)).
[[Page 42522]]
(2) The Agency will use the applicant provider's CMS Certification
Number (CCN) to verify the applicant provider is listed as a
``Hospital'' for the ``Provider or Supplier Type'' category on the
Centers for Medicare and Medicaid Services' Quality Certification and
Oversight Reports (QCOR) website https://qcor.cms.gov/index_new.jsp.
Hybrid means a combination of two or more renewable energy
technologies that are incorporated into a unified system to support a
single project.
Hydroelectric source means a renewable energy system producing
electricity using various types of moving water including, but not
limited to, diverted run-of-river water, in-stream run-of-river water,
and in-conduit water.
Hydrogen project means a system that produces hydrogen derived from
renewable biomass or water using wind, solar, ocean (including tidal,
wave, current, and thermal), geothermal, or hydroelectric sources; or
that uses hydrogen derived from renewable biomass or water using wind,
solar, ocean (including tidal, wave, current, and thermal), geothermal
or hydroelectric sources as an energy transport medium in the
production of mechanical or electric power or thermal energy.
Immediate family(ies) means individuals who live in the same
household or who are closely related by blood, marriage, or adoption,
such as a spouse, domestic partner, parent, child, sibling, aunt,
uncle, grandparent, grandchild, niece, nephew, or first cousin.
Indian tribe means the term as defined in 25 U.S.C. 5304(e).
In-house expenses means expenses associated with activities that
are routinely the responsibility of a lender's internal staff,
including in-house lawyers, or its agents and that are normally
incurred for administration of the loan. In-house expenses include, but
are not limited to, employees' salaries, staff lawyers, travel, and
overhead.
Inspector means a qualified consultant who has at least 3 years of
experience and has completed at least five inspections on similar type
projects.
Insurance means a means of protection from financial loss by which
a company provides a guarantee of compensation for a specified loss,
damage, illness, or death in return for payment of a premium.
Intangible assets means an asset that lacks physical substance.
This includes, but is not limited to, copyrights, patents, capitalized
franchise fees, goodwill, customer lists, software, organizational
expenses, loan closing expenses, social media assets, and bond fees.
Interconnection agreement means a contract containing the terms and
conditions governing the interconnection and parallel operation of the
borrower's electric generation equipment and the utility's electric
power system or a borrower's biogas production system and a gas
pipeline.
Interest means an amount paid by a borrower to a lender as a form
of compensation for the use of money. When money is borrowed, interest
is typically paid over a certain period of time (typically months or
years) to the lender as percentage of the principal amount owed. The
term interest does not include default charges, penalty interest, or
late payment fees.
Interest termination date means the date on which no further
interest will be payable by the Agency under the loan note guarantee.
Interim financing means a temporary or short-term loan made with
the clear intent when the loan is made that it will be repaid through
another loan that provides permanent financing. Interim financing is
frequently used to pay construction and other costs associated with the
proposed project, with permanent financing to be obtained after project
completion.
Lender means a lending entity that the Agency has approved to
originate, service, and collect payments on loans guaranteed under this
part.
Lender's agreement means the Agency-approved form of contract
between the Agency and the lender setting forth the lender's guaranteed
loan responsibilities.
Liquidation expenses means costs directly associated with the
liquidation of collateral, including, without limitation, costs
associated with preparing collateral for sale (e.g., repairs and
transport), the sale (e.g., advertising, public notices, auctioneer
expenses, and foreclosure fees), and conducting appraisals. Legal fees
are considered liquidation expenses provided that the fees are
reasonable as determined by the Agency and cover legal issues
pertaining to the liquidation that could not be properly handled by the
lender and its in-house legal staff. Liquidation expenses do not
include in-house expenses.
Loan agreement means the agreement between the borrower and lender
containing the specified terms and conditions of the guaranteed loan
and the responsibilities of the borrower and lender.
Loan classification means the process by which loans are examined
and categorized by the probability of default and degree of potential
loss in the event of default.
Loan documents mean the loan agreement, promissory note, mortgage/
deed of trust, and other security documents entered into by the
borrower and the lender in connection with the guaranteed loan.
Loan note guarantee means the Agency-approved form containing the
terms and conditions of the guarantee of an identified guaranteed loan.
Loan packager means a person, including a loan referral agent,
broker, or an agent other than the borrower or lender that prepares a
guaranteed loan application on behalf of the borrower or lender.
Local government means a county, municipality, town, township,
village, or other unit of general government below the State level. The
term also includes Tribal governments when tribal lands are within the
service area.
Local owner means an individual who owns any portion of an entity
that is the eligible borrower and whose primary residence is located
within the normal commuting area of the guaranteed loan project.
Locally or regionally produced agricultural food product means any
agricultural food product that is raised, produced, and distributed in
the locality or region in which the final product is marketed, so that
the distance the product is transported is less than 400 miles from the
origin of the product, or within the State in which the product is
produced. Food products could be raw, cooked, or a processed edible
substance, beverage, or ingredient used or intended for use or for sale
in whole or in part for human consumption.
Market value means the most probable price that an asset should
bring in a competitive and open market under all conditions requisite
to a fair sale, the buyer and seller, each acting prudently,
knowledgeably, and assuming the price is not affected by undue
stimulus. Implicit in this definition is the consummation of a sale as
of a specified date and the passing of title from seller to buyer under
conditions whereby--
(1) Buyer and seller are typically motivated;
(2) Both parties are well informed or well advised, and each acting
in what he or she considers his or her own best interest;
(3) A reasonable time is allowed for exposure in the open market;
(4) Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
(5) The price represents the normal consideration for the property
sold unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
[[Page 42523]]
Matching funds means those project funds required by 7 U.S.C. 8107
to be eligible to receive the guaranteed loan. Funds provided by the
borrower in excess of matching funds are not matching funds.
Material adverse change means any change in circumstances
associated with a guaranteed loan, including, without limitation, any
change in the purpose of the loan, the borrower's financial condition
or collateral that, individually or in the aggregate, have jeopardized,
or could be reasonably expected to jeopardize, the borrower's repayment
of the guaranteed loan.
Monetary default means a failure to make a scheduled or required
payment on a guaranteed loan.
Multi-note system means an option for the lender to provide one
promissory note for the unguaranteed portion and a separate promissory
note(s) for the guaranteed portion of the loan. All promissory notes
must reflect the same payment terms.
National Appeals Division (NAD) means the division of the United
States Department of Agriculture pursuant to 7 CFR part 11.
Natural resource value-added product means a product derived from
any naturally occurring resource, including agricultural resources,
that is further processed to add value or used to generate energy or
renewable energy.
Negligent loan origination means the failure of a lender to perform
those services or actions that a reasonably prudent lender would
perform in originating its own portfolio of loans that are not
guaranteed. The term includes the concepts of failure to act, not
acting in a timely manner, and acting in a manner contrary to the
manner in which a reasonably prudent lender would act.
Negligent loan servicing means the failure of a lender to perform
those services that a reasonably prudent lender would perform in
servicing (including liquidation of) its own portfolio of loans that
are not guaranteed. The term includes the concepts of failure to act,
not acting in a timely manner, and acting in a manner contrary to the
manner in which a reasonably prudent lender would act.
New business means a business that has been in operation for less
than one full year, including a new enterprise or new affiliate of an
existing business moving or expanding into a new location involving new
market or labor areas.
Non-monetary default means a situation where a borrower is not in
compliance with the covenants or requirements of the loan documents,
program requirements or loan.
Non-regulated lending entity means a lending entity that is not
subject to supervision and examination by an agency of the United
States or a State; or a lending entity created specifically by State
statute and operating under the direct supervision of a State
government authority.
Ocean energy means energy created by use of various types of moving
water in the ocean and other large bodies of water (e.g., Great Lakes)
including, but not limited to, tidal, wave, current, and thermal
changes.
Off-take agreement means the terms and conditions governing the
sale and transportation of products produced by the borrower and sold
to another party.
Otherwise improve means, but is not limited to, the following:
(1) The purchase of necessary equipment that will itself provide an
essential service to the rural community, such as vehicles, emergency
and medical equipment, telecommunication equipment, computers, water
meters and pumps;
(2) The purchase of equipment necessary to maintain, protect,
operate, or use the eligible facility or service;
(3) The purchase of existing eligible facilities, when necessary,
to either improve or prevent a loss of service provided the price paid
for the facility is fair and reasonable and not directly related to the
dollar amount of any debt to be retired by the seller; and
(4) Payment of tap fees and other utility connection charges as
provided in utility purchase contracts.
Parity means a lien position whereby two or more separate lending
entities or separate loans share a security interest of equal priority
in collateral.
Participation means the sale of an interest in a loan by the lead
lender to one or more participating lenders wherein the lead lender
retains the note, collateral securing the note, and all responsibility
for managing and servicing the loan. Participants have credit risk and
are dependent upon the lead lender for protection of their interests in
the loan. The relationship is typically formalized by a participation
agreement between the lenders. The participant lender(s) and the
borrower have no rights or obligations to one another.
Passive investor means an equity investor who does not actively
participate in management and operation decisions of the borrower or
any affiliate of the borrower as evidenced by a contractual agreement.
Person means an individual or entity organized under the laws of a
State or a Tribe.
Power purchase agreement means the terms and conditions governing
the sale and transportation of electricity produced by the borrower to
another party.
Professional service means services used by the borrower for
planning and developing a project, including, but not limited to,
appraisals, architectural services, surveys, environmental impact
analyses, implementing mitigation measures, and establishing or
acquiring property rights. Such services are generally rendered by
persons licensed or certified by States or accreditation associations,
such as architects, engineers, accountants, attorneys, or appraisers,
and those rendered by loan packagers, but not including loan finders.
Project means the activity identified by a lender in its
application for a loan guarantee for which the guaranteed loan funds
will be used.
Promissory note means the legal instrument evidencing debt executed
by the borrower to a lender with stipulated repayment terms. The term
promissory note includes bonds and other related debt instruments
issued by the lender to a borrower.
Protective advance means an advance made by the lender for the
purpose of preserving and protecting the collateral where the borrower
has failed to, and will not or cannot, meet its obligations to protect
or preserve collateral. Protective advances include, but are not
limited to, advances for property taxes, rent, hazard and flood
insurance premiums, emergency repairs and annual assessments that
protect the collateral. Legal and accounting fees are not a protective
advance.
Public body means a state, county, city, township, incorporated
town or village, borough, authority, district, or other political
subdivision of a State, or Indian tribe.
Qualified consultant(s) means an independent third-party person
possessing the knowledge, expertise, and experience to perform the
specific task required.
Rated power means the maximum amount of energy that can be created
at any given time.
Refurbished means a piece of equipment or renewable energy system
that has been brought into a commercial facility, thoroughly inspected,
and worn parts replaced and has a warranty that is approved by the
Agency or its designee.
Regulated lending entity means a lending entity that is subject to
[[Page 42524]]
supervision and examination by an agency of the United States or a
State; or a lending entity created specifically by State statute and
operating under the direct supervision of a State government authority.
Renewable biomass means--
(1) Materials, pre-commercial thinning, or invasive species from
National Forest System land or public lands (as defined in Section 103
of the Federal Land Policy and Management Act of 1976 (43 U.S.C. 1702))
that--
(i) Are by-products of preventive treatments that are removed to
reduce hazardous fuels; to reduce or contain disease or insect
infestation; or to restore ecosystem health;
(ii) Would not otherwise be used for higher-value products; and
(iii) Are harvested in accordance with applicable law and land
management plans and the requirements for old-growth maintenance,
restoration, and management direction of paragraphs (2), (3), and (4)
of subsection (e) of section 102 of the Healthy Forests Restoration Act
of 2003 (16 U.S.C. 6512) and large-tree retention of subsection (f) of
section 102; or
(2) Any organic matter that is available on a renewable or
recurring basis from non-Federal land or land belonging to an Indian or
Indian tribe that is held in trust by the United States or subject to a
restriction against alienation imposed by the United States, including
the following items:
(i) Renewable plant material (including feed grains, other
agricultural commodities, other plants and trees, and algae); and
(ii) Waste material (including crop residue, other vegetative waste
material (including wood waste and wood residues), animal waste and
byproducts (including fats, oils, greases, and manure), and food and
yard waste).
Renewable energy means energy derived from--
(1) A wind, solar, renewable biomass, ocean (including tidal, wave,
current, and thermal), geothermal or hydroelectric source; or
(2) Hydrogen derived from renewable biomass or water using an
energy source described in paragraph (1) of this definition.
Renewable energy site assessment means a report providing
information regarding and recommendations for the use of commercially
available renewable energy technologies in the borrower's operation.
The report must be prepared by a qualified consultant for the specific
energy system and project proposed.
Renewable energy system (RES) means a system that produces usable
energy from a Renewable Energy source and may include:
(1) Distribution components necessary to move energy produced by
such system to the initial point of sale; and
(2) Other components and ancillary infrastructure of such system,
such as a storage system; however, such system may not include a
mechanism for dispensing energy at retail.
Report of loss means an Agency-approved form used by lenders when
reporting a financial loss under a guaranteed loan.
Retrofitting means a modification to an existing building or
installed equipment that incorporates a function or feature(s) not
included in the original design when built or for the replacement of
existing components with components that improve the original design
and does not affect original warranty if the warranty is still in
existence.
Rural and rural area means any area of a State not in a city or
town that has a population of more than 50,000 inhabitants, and which
excludes certain populations pursuant to 7 U.S.C. 1991(a)(13)(H),
according to the latest decennial census of the United States and not
in the urbanized area contiguous and adjacent to a city or town that
has a population of more than 50,000 inhabitants. In making this
determination, the Agency will use the latest decennial census of the
United States. The following exclusions apply:
(1) Any area in the urbanized area contiguous and adjacent to a
city or town that has a population of more than 50,000 inhabitants that
has been determined to be ``rural in character'' as follows:
(i) The determination that an area is ``rural in character'' will
be made by the Under Secretary of Rural Development. The process to
request a determination under this provision is outlined in paragraph
(1)(ii) of this definition. The determination that an area is ``rural
in character'' under this definition will apply to areas that are
within:
(A) An urbanized area that has two points on its boundary that are
at least 40 miles apart, which is not contiguous or adjacent to a city
or town that has a population of greater than 150,000 inhabitants or
the urbanized area of such a city or town; or
(B) An urbanized area contiguous and adjacent to a city or town of
greater than 50,000 inhabitants that is within \1/4\ mile of a rural
area.
(ii) Units of local government may petition the Under Secretary of
Rural Development for a ``rural in character'' designation by
submitting a petition to the appropriate Rural Development State
Director for recommendation to the Administrator on behalf of the Under
Secretary. The petition shall document how the area meets the
requirements of paragraph (1)(i)(A) or (B) of this definition and
discuss why the petitioner believes the area is ``rural in character,''
including, but not limited to, the area's population density,
demographics, and topography and how the local economy is tied to a
rural economic base. Upon receiving a petition, the Under Secretary
will consult with the applicable governor or leader in a similar
position and request comments to be submitted within 5 business days,
unless such comments were submitted with the petition. The Under
Secretary will release to the public a notice of a petition filed by a
unit of local government not later than 30 days after receipt of the
petition by way of publication in a local newspaper and posting on the
Agency's website at https://www.rd.usda.gov/onerdguarantee, and the
Under Secretary will make a determination not less than 15 days, but no
more than 60 days, after the release of the notice. Upon a negative
determination, the Under Secretary will provide to the petitioner an
opportunity to appeal a determination to the Under Secretary, and the
petitioner will have 10 business days to appeal the determination and
provide further information for consideration. The Under Secretary will
make a determination of the appeal in not less than 15 days, but no
more than 30 days.
(iii) Rural Development State Directors may also initiate a request
to the Under Secretary to determine if an area is ``rural in
character.'' A written recommendation should be sent to the
Administrator, on behalf of the Under Secretary, that documents how the
area meets the statutory requirements of paragraph (1)(i)(B) of this
definition and discusses why the State Director believes the area is
``rural in character,'' including, but not limited to, the area's
population density, demographics, topography, and how the local economy
is tied to a rural economic base. Upon receipt of such a request, the
Administrator will review the request for compliance with the ``rural
in character'' provisions and make a recommendation to the Under
Secretary. Provided a favorable determination is made, the Under
Secretary will consult with the applicable Governor and request
comments within 10 business days, unless gubernatorial comments were
submitted with the request. A public notice will be published by the
State Office in accordance with
[[Page 42525]]
paragraph (1)(ii) of this definition. There is no appeal process for
requests made on the initiative of the State Director.
(2) An area that is attached to the urbanized area of a city or
town with more than 50,000 inhabitants by a contiguous area of
urbanized census blocks that is not more than two census blocks wide.
Applicants from such an area should work with their Rural Development
State Office to request a determination of whether their project is
located in a rural area under this provision.
(3) For the Commonwealth of Puerto Rico, the island is considered
Rural and eligible except for the San Juan Census Designated Place
(CDP) and any other CDP with greater than 50,000 inhabitants. Areas
within CDPs with greater than 50,000 inhabitants, other than the San
Juan CDP, may be determined to be Rural if they are ``not urban in
character.''
(4) For the State of Hawaii, all areas within the State are
considered rural and eligible except for the Honolulu CDP within the
County of Honolulu and any other CDP with greater than 50,000
inhabitants. Areas within CDPs with greater than 50,000 inhabitants,
other than the Honolulu CDP, may be determined to be Rural if they are
``not urban in character.''
(5) For the purpose of defining a rural area in the Republic of
Palau, the Federated States of Micronesia, and the Republic of the
Marshall Islands, the Agency shall determine what constitutes rural and
rural Area based on available population data.
Rural small business means a small business that is located in a
rural area or that can demonstrate the proposed project for which
assistance is being applied for under this part is located in a rural
area.
Service area means the area identified to be served.
Significant ties means, as determined by the agency, a facility
under private control will carry out a public purpose and continue to
primarily serve rural areas for CF projects (not applicable to public
bodies and Federally Recognized Tribes) as evidenced by the following:
Association with or control by a public body or bodies; or Broadly
based membership and controlled primarily by members residing in the
project service area. Membership must be open without regard to race,
color, religion, national origin, sex, age, disability, sexual
orientation, or marital or familial status.
Simple payback means the estimated simple payback of a project
funded under this part as calculated using paragraph (1), (2), or (3),
as applicable, of this definition.
(1) Energy efficiency improvement projects simple payback = (Total
Project Costs) / (Dollar value of energy saved).
(i) Energy saved will be determined by subtracting the projected
energy (determined by the method in paragraph (1)(i)(B) of this
definition) to be consumed from the historical energy consumed
(determined by the method in paragraph (1)(i)(A) of this definition),
and converting the result to a monetary value using a constant value or
price of energy (determined by the method in paragraph (1)(i)(C) of
this definition).
(A) Actual energy used in the original building and/or equipment,
as applicable, prior to the EEI project, must be based on the actual
average annual total energy used in British thermal units (BTU) over
the most recent 12, 24, 36, 48, or 60 consecutive months of operation.
(B) Projected energy use if the proposed EEI project had been in
place for the original building and/or equipment, as applicable, for
the same time period used to determine that actual energy use under
paragraph (1)(i)(A) of this definition.
(C) Value or price of energy must be the actual average price paid
over the same time period used to calculate the actual energy used
under paragraph (1)(i)(A) of this definition.
(ii) Energy efficiency improvement projects simple payback does not
allow EEI to monetize benefits other than the dollar amount of the
energy savings the agricultural producer or rural small business
realizes as a result of the improvement.
(2) Renewable energy systems projects simple payback = (total
project costs) / (dollar value of energy units replaced, credited,
sold, or used and fair market value of byproducts as applicable in a
typical year).
(i) Value of energy replaced will be calculated based on the
borrower entity's historical energy consumption with actual average
price paid for the energy replaced, following the methodology outlined
in paragraph (1)(i) of this definition.
(ii) Value of energy credited or sold will be calculated based on
the amount of energy units to be sold at the proposed rate per unit, as
documented in utility net metering or crediting policies and/or a
purchase agreement.
(iii) If proposed energy will be used in a new facility, value of
energy used will be calculated based on the amount of energy units to
be used at the documented price per unit of conventional fuel
alternative.
(iv) Value of byproducts produced by and used in the project or
related enterprises should be documented at the fair market value to be
received for the byproducts in a typical year.
(v) Renewable energy systems projects simple payback does not
include any one-time benefits such as but not limited to construction
and investment-related benefits, nor credits which do not provide
annual income to the project, such as tax credits.
(3) Energy efficiency equipment and systems projects simple payback
= (total project costs) / (dollar value of efficiency savings).
Efficiency savings will be determined by subtracting the annual value
of energy to be consumed by the proposed energy efficient equipment
from the annual value of energy that a conventional equipment
alternative would have consumed. Adequate documentation must be
provided for all consumption estimates and values utilized in the
calculation.
Small business means:
(1) An entity or utility, as applicable, as further defined in
paragraphs (1)(i) through (iv) and meeting the requirements in
paragraph (2) of this definition. With the exception of the entities
identified in this paragraph, all other non-profit entities are not
small businesses for the purposes of REAP program eligibility:
(i) A private for-profit entity, including a sole proprietorship,
partnership, or corporation;
(ii) A cooperative (including a cooperative qualified under section
501(c)(12) of the Internal Revenue Code);
(iii) An electric utility (including a Tribal or governmental
electric utility) that provides service to rural consumers and operates
independent of direct government control; or
(iv) A Tribal corporation or other Tribal business entities that
are chartered under Section 17 of the Indian Reorganization Act (25
U.S.C. 477) or have similar structures and relationships with their
Tribal governments and are acceptable to the Agency. The Agency will
determine the small business status of such Tribal entity without
regard to the resources of the Tribal government; and
(2) An entity that meets Small Business Administration (SBA) size
standards in accordance with 13 CFR part 121 and criteria of 13 CFR
121.301 as applicable to financial assistance programs, including
paragraph (2)(i) or (ii) of this section. The size of the concern alone
and the size of the concern combined with other entity(ies) it controls
or entity(ies) it is controlled by, must not exceed the size standard
[[Page 42526]]
thresholds designated for the industry in which the concern alone or
the concern and its controlling entity(ies), whichever is higher, is
primarily engaged.
(i) The concern's tangible net worth is not in excess of $15
million and average net income (excluding carry-over losses) for the
preceding two completed fiscal years is not in excess of $5.0 million;
or
(ii) The size of the concern does not exceed the SBA size standard
thresholds designated for the industry in which it is primarily
engaged, as measured by number of employees or annual receipts.
Industry size standard designations to be utilized are listed in the
SBA's table of size standards found in 13 CFR 121.201. Number of
employees and annuals receipts are calculated as follows:
(A) Number of employees is calculated as the average number of all
individuals employed by a concern on a full-time, part-time, or other
basis, based upon numbers of employees for each of the pay periods for
the preceding completed 12 calendar months. If a concern has not been
in business for 12 months, the average number of employees is used for
each of the pay periods during which it has been in business.
(B) Annual receipts are calculated as average total income plus
cost of goods sold for the five most recent years. If a concern has
been in operation for less than 60 months, average annual receipts for
as long as the concern has been in operation are used.
State means any of the 50 States of the United States, the
Commonwealth of Puerto Rico, the District of Columbia, the U.S. Virgin
Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana
Islands, the Republic of Palau, the Federated States of Micronesia, and
the Republic of the Marshall Islands.
State bond banks and State bond pools mean an entity authorized by
the State to issue State debt instruments and use the funds received to
finance eligible projects under this part.
Steady state operating level means that there is an adequate and
consistent supply of the applicable renewable energy resource(s) for
the project, both on a short-term (current) and long-term basis, and
the renewable energy system and process(es) are operating at projected
capacity, consistently yielding an adequate quantity and quality of
renewable energy.
Subordination means the reduction of the lender's lien priority on
certain assets pledged by the borrower to secure payment of the
guaranteed loan to a position junior to, or on parity with, the lien
position of another loan.
Total eligible project costs means the sum of all eligible project
costs.
Total project costs means the sum of all costs associated with a
completed project.
Transfer and assumption means the Agency-approved conveyance by a
borrower to an assuming borrower of the assets, collateral, and
liabilities of the borrower in return for the assuming borrower's
binding promise to pay the outstanding debt.
Underserved communities mean communities (including urban or rural
communities and Indian tribal communities) that have limited access to
affordable, healthy foods, including fresh fruits and vegetables, in
grocery retail stores or farmer-to-consumer direct markets and that
have either a high rate of hunger or food insecurity or a high poverty
rate as reflected in the most recent decennial census or other Agency-
approved census.
Uniform Standards of Professional Appraisal Practice (USPAP) means
the appraisal standards promulgated by the Appraisal Standards Board of
the Appraisal Foundation.
Used equipment means any equipment that has been used and is
provided in an ``as is'' condition.
Useful life means estimated durations of utility placed on a
variety of assets, including buildings, machinery, equipment, vehicles,
electronics, and furniture. Useful life estimations terminate at the
point when assets are expected to become obsolete, require major
repairs, or cease to deliver economical results.
Veteran means a person who served in the active military, naval, or
air service and was discharged or released therefrom under conditions
other than dishonorable as defined in 38 U.S.C. 101(2).
Waste disposal means sanitary sewer (treatment and collection),
solid waste, or storm drainage facilities.
Working Capital means current assets available to support a
business' operations and growth. Working capital is calculated as
current assets less current liabilities.
Sec. 5001.4 Exception authority.
The Administrator may, on a case-by-case basis, grant an exception
to any requirement or provision of this subpart provided that such an
exception is in the best financial interests of the Federal Government.
Exercise of this authority cannot be in conflict with applicable law.
Sec. 5001.5 Appeal and review rights.
Borrowers, lenders, and holders may have appeal or review rights
for Agency decisions made under this part. Agency decisions that are
adverse to the individual participant are appealable, while matters of
general applicability are not subject to appeal; however, such
decisions are reviewable for appealability by the National Appeals
Division (NAD). All appeals will be conducted by NAD and will be
handled in accordance with 7 CFR part 11.
(a) The borrower, lender, and holder can appeal any Agency decision
that directly and adversely affects them.
(1) For an adverse decision that affects the borrower, the lender
and borrower must jointly execute a written request for appeal of an
adverse decision made by the Agency.
(2) An adverse decision that affects only the lender can be
appealed by the lender only.
(3) An adverse decision that affects only the holder can be
appealed by the holder only.
(b) In cases where the Agency has denied or reduced the amount of
final loss payment to the lender, the adverse decision can be appealed
only by the lender.
(c) A decision by a lender adverse to the interest of the borrower
is not a decision by the Agency, even if it was concurred in by the
Agency, and therefore cannot be reviewed for appealability or appealed
to NAD.
Sec. 5001.6 General lender responsibilities.
(a) Lenders are responsible for originating and servicing loans
guaranteed by the Agency under this part in accordance with the
provisions of this part and, for those guaranteed loans issued under
one of the guaranteed loan programs identified in Sec. 5001.1(a)(1)
through (4), with the provisions of the applicable guaranteed loan
program. Any action or inaction on the part of the Agency does not
relieve the lender of its responsibilities.
(b) Lenders can contract for services, but such contracting does
not relieve a Lender from its responsibilities as identified in this
part or, where applicable, in the applicable guaranteed loan program
identified in Sec. 5001.1.
(c) If a lender fails to comply with the requirements of this part,
the Agency may reduce any loss payment in accordance with the lender's
agreement and loan note guarantee.
Sec. 5001.7 Agency's special initiatives.
Applicants submitting applications that support the implementation
of strategic or special initiatives are encouraged to review the
Agency's
[[Page 42527]]
annual notice to determine if their projects are eligible for receiving
priority for projects. These projects may also support the
implementation of strategic economic development and community
development plans on a multi-jurisdictional and multi-sectoral basis in
accordance with section 6401 of the Agricultural Improvement Act of
2018 (Pub. L. 115-334).
Sec. 5001.8 Approvals, regulations, and forms.
(a) When Agency approval or concurrence is required, it must be in
writing and must be obtained prior to the action for which approval or
concurrence is required is taken.
(b) All references to statutes and regulations include any and all
successor statutes and regulations.
(c) All references to forms include any and all predecessor and
successor forms as specified by the Agency.
(d) Copies of all regulations and forms referenced in this part can
be obtained through the Agency and from the Agency's website at https://www.rd.usda.gov/onerdguaranteed.
Sec. 5001.9 Standards for financial information.
(a) All financial information (e.g., financial statements, balance
sheets, financial projections, and income statements) must be prepared
and submitted in accordance with accounting practices acceptable to the
Agency. Such practices can include, but are not limited to, Generally
Accepted Accounting Principles (GAAP) and the industry's standard
accounting practice.
(b) For sole proprietorships and other situations where business
assets are held personally, financial statements must be prepared using
only the assets and liabilities directly attributable to the
applicant's project. Assets, plus any improvements, must be valued at
the lower of cost or market value.
Sec. 5001.10 Federal Register notices and amendments.
Rural Development will issue annual Federal Register notices each
year specifying the amount of funds available under this part for OneRD
guarantees. Notices may also include the following information
applicable to projects specifically funded under a particular notice:
Maximum loan amounts, fees, and priority scoring for discretionary
points.
Sec. Sec. 5001.11-5001.99 [Reserved]
Sec. 5001.100 OMB control number.
The report and recordkeeping requirements contained in this part
have been approved by the Office of Management and Budget and have been
assigned OMB control number 0572-0155.
Subpart B--Eligibility Provisions
Sec. 5001.101 Introduction
This subpart addresses the eligibility provisions for projects,
borrowers, and lenders. This subpart also includes provisions for
projects involving the purchase of cooperative stock or cooperative
equity, the conversion of businesses to cooperatives or Employee Stock
Ownership Plans (ESOP), and New Markets Tax Credits (NMTC).
(a) Project eligibility. Sections 5001.102 through 5001.108
identify requirements for projects to be eligible to receive a loan
guarantee under this part. Section 5001.115 identifies types of
projects that are not eligible for a loan guarantee under this part.
The Agency will not issue a loan guarantee under this part for any
project that does not meet the applicable eligibility criteria as
specified.
(b) Borrower eligibility. Section 5001.126 identifies the types of
borrowers that are eligible to receive a loan guarantee for their
projects under this part. The types of borrowers eligible to receive
loan guarantees for their Projects vary based on the guaranteed loan
program they are applying under and that guaranteed loan program's
authorizing statute as set forth in Sec. 5001.1. Section 5001.127
identifies conditions that would make an otherwise eligible borrower
ineligible for receiving a loan guarantee for its project under this
part.
(c) Lender eligibility. Section 5001.130 identifies the
requirements for a lending entity to be an eligible lender under this
part. Section 5001.131 addresses the lender's agreement, which each
approved lender must execute with the Agency in order to originate and
service guaranteed loans under this part. Section 5001.132 addresses
provisions necessary for a lender to maintain its approved lender
status.
(d) Cooperative stock/cooperative equity/conversions. Section
5001.140 identifies requirements associated with issuing loan
guarantees in connection with the purchase of cooperative stock,
transferable stock shares, and cooperative equity and for the
conversions of businesses to either cooperatives or Employee Stock
Ownership Plans (ESOP).
(e) New Markets Tax Credits. Section 5001.141 identifies the
requirements specific to guaranteed loans involving projects that
include NMTC available under the NMTC program authorized by the U.S.
Department of the Treasury.
Sec. 5001.102 Project eligibility--general.
To be eligible for a loan guarantee under this part, a project must
meet the requirements specified in this section and those in the
applicable section in Sec. Sec. 5001.103 through 5001.108.
(a) Service area. For projects with a defined service area, the
boundaries for the proposed service area must be chosen in such a way
that no user or area will be excluded because of race, color, religion,
sex, marital status, age, disability, or national origin. This does not
preclude financing or constructing:
(1) Projects in phases (each phase must be financially sustainable
without consideration of future phases) when it is not practical to
finance or construct the entire project at one time; and
(2) Projects where it is not economically feasible to serve the
entire service area, provided the economic feasibility is determined on
the basis of the entire system or facility and not by considering the
cost of separate extensions to, or parts thereof.
(b) Location. A project must be located in a State and meet the
rural or rural area requirements of the applicable section in
Sec. Sec. 5001.103 through 5001.108.
(c) Tax-exempt financing. The agency is prohibited from
guaranteeing a project funded with tax-exempt financing. In cases where
a project involves both tax-exempt and taxable financing, the portion
of the project that involves taxable financing is eligible to receive a
loan guarantee if that portion of the project is separate and distinct
from the part that is financed by the tax-exempt obligation, and the
guaranteed loan is not essential to issuance of the tax-exempt
obligation.
(d) Debt refinancing. The Agency can guarantee loans for debt
refinancing as described in paragraphs (d)(1) through (5) of this
section. An eligible debt refinancing project is:
(1) Refinancing of debt on one or more loans owed to another
creditor;
(2) Refinancing of debt owed to the applicant lender or any part
thereof provided that the applicant lender debt being refinanced does
not exceed 50 percent of the total use of funds in the new aggregated
federally-guaranteed debt, the applicant lender debt being refinanced
is in a current status for the past six months and the new guaranteed
loan is providing better rates or repayment terms. The current status
cannot be achieved by the lender forgiving the borrower's debt or by
servicing actions that impact the borrower's repayment schedule; or
(3) Refinancing of debt owed directly to the Federal Government or
that is federally-guaranteed, including any
[[Page 42528]]
guaranteed debt owed to the applicant lender, when a refinance of this
debt is consistent with sections 333 and 306(a)(24)(C) of the
Consolidated Farm and Rural Development Act (as amended by the
Agricultural Act of 2018, Pub. L. 115-334). Such guaranteed debt shall
not be included in the amount of applicant lender debt when calculating
the maximum percentage of the total use of funds in the new guaranteed
loan as stated in paragraph (d)(2) of this section.
(4) When the refinancing is in accordance with paragraphs (d)(1)
through (3) of this section, the following requirements must be met:
(i) The Agency has determined that the project is viable and debt
refinancing is necessary to improve cash flow;
(ii) The debt is reflected on the borrower's balance sheet and the
original loan funds were used for project-eligible purposes.
Refinancing of existing of lines of credit is considered an eligible
purpose for debt refinancing in the B&I program;
(iii) For loans where debt refinancing is a majority purpose of the
guaranteed loan, the borrower must demonstrate historical actual cash
available to provide a total debt service coverage ratio of not less
than 1.1 times its new debt service requirements or that the borrower's
current financial performance demonstrates it has corrected or
recovered from impacts or issues adversely effecting its past financial
performance.
(5) Refinancing of debt incurred by a rural hospital to preserve
access to a health service when the refinancing will meaningfully
improve the financial position of the hospital. The debt can be
existing Agency direct loan debt, Agency guaranteed debt, or another
lender's debt. Loan requests to refinance rural hospital debt must
demonstrate that the new amount of annual debt repayment on the debt
being refinanced will be less than the existing amount of annual debt
repayment and provide a total debt service coverage ratio of 1.1 to 1.0
based on historical cash flow. To calculate the ratio, the new debt
service amount will include annual capital expense reserve and annual
debt repayment reserve requirements.
Sec. 5001.103 Eligible CF projects and requirements.
For a CF projects to be eligible for a loan guarantee under this
part, it must meet the criteria specified in Sec. 5001.102 and this
section and be for a borrower eligible to submit an application for the
project in accordance with Sec. 5001.126.
(a) Type of project. The project must be for the construction,
enlargement, extension, or to otherwise improve an essential community
facility. Essential community facilities include, but are not limited
to:
(1) Health care facilities and services, including but not limited
to hospitals;
(2) Fire, rescue, and public safety facilities and services;
(3) Community, public, social, educational, or cultural facilities
or services;
(4) Transportation facilities such as streets, bridges, roads,
ports, and airports;
(5) Utility projects such as hydroelectric generating facilities
and related connecting systems and appurtenances; supplemental and
supporting structures for other rural electrification or telephone
systems including facilities such as headquarters, office buildings,
storage facilities, and maintenance shops when not eligible for RUS
financing; natural gas distribution systems; and recycling or transfer
centers or stations.
(6) Telecommunications end-user equipment as it relates to public
safety, medical, or educational telecommunications links when not
eligible for RUS financing;
(7) Water infrastructure facilities such as levees, dams,
reservoirs, inland waterways, canals, and irrigation systems;
(8) The purchase and installation of renewable energy systems for
use by an essential community facility when:
(i) The renewable energy system will help defray the cost of
facility operation over the life of the system;
(ii) The renewable energy system will improve the borrower's
ability to provide the underlying essential community service, such as
providing backup facilities or extending fuel supplies of backup
facilities;
(iii) The borrower does not, and will not, have any contract to
sell power generated by the renewable energy system; however, receiving
credit for excess production is permitted;
(iv) The borrower does not anticipate, and has no plan for,
generation of more energy than it will use in a consecutive 12-month
period. The borrower may receive credits from a utility for energy
production that happens to exceed facility usage during a particular
month;
(v) The renewable energy system is commercially available with
proven operating history specific to the proposed application; and
(vi) The borrower provides a technical report as part of the
financial feasibility study in accordance with Sec. 5001.307(e) (1)
and (2), as applicable of subpart D.
(9) Land acquisition and necessary site preparation including
access ways and utility extensions to and throughout an industrial park
site; and
(10) Community parks, community activity centers, and similar types
of facilities that are an integral part of the orderly development of a
community (meaning a development that is addressing a need in the
community). Recreational components including, but not limited to,
playground equipment of an otherwise non-recreational eligible
community facility such as childcare, educational, or health care
facilities are also eligible.
(b) Public use. All facilities financed under the provisions of
this section will be for public use.
(1) To demonstrate availability for public use, the borrower may
not restrict use of or membership to its facility or service based on
race, color, religion, sex, national origin, age, disability, sexual
orientation, or marital or familial status.
(i) However, 7 CFR 15a.215(b) provides that the membership
practices of the Young Men's Christian Association (YMCA), the Young
Women's Christian Association (YWCA), the Girl Scouts, the Boy Scouts,
and Camp Fire Girls are exempt from open membership practices on the
basis of sex.
(ii) If membership or admission is customarily required to access
and use the facility or service, any individual who applies for
membership or admission must be given membership, admitted, or be
placed on a waiting list to join as space becomes available on a first-
come, first-served basis. This does not preclude an essential community
facility from having a threshold admission requirement, such as a
college or university requiring their applicants to have a certain
grade point average before they are considered for admission. The
standard must be applied consistently to all applicants and be common
to the industry.
(c) Project location. The project must be located in a rural area
as defined in Sec. 5001.3 of this part, except that utility projects
serving both rural and non-rural areas are eligible for a loan
guarantee regardless of project location. For such utility projects,
the Agency will guarantee the rural area portion of the project and
only the portion of the project necessary to provide the essential
services to rural areas. The part of the facility located in a non-
rural area must be necessary to provide the essential services to rural
areas. The availability of funds for CF projects is contingent on its
rural area population
[[Page 42529]]
and the reservation of funds outlined in Sec. 5001.316(e).
Sec. 5001.104 Eligible WWD projects and requirements.
For a WWD project to be eligible for a loan guarantee under this
part, it must meet the criteria specified in Sec. 5001.102 and this
section and be for a borrower eligible to submit an application for the
project in accordance with Sec. 5001.120.
(a) Type of project. The project must be for one or more of the
following:
(1) To construct, enlarge, extend, or otherwise improve the
following types of facilities:
(i) Drinking water facilities;
(ii) Sanitary sewage facilities;
(iii) Solid waste disposal facilities; or
(iv) Storm wastewater disposal facilities.
(2) Purchase of equipment to operate, maintain, or protect
facilities.
(b) Public use. The project must be for a public purpose.
(c) Project location. The project must be located in a rural area
as defined in Sec. 5001.3 of this part. For utility service projects
serving both rural and non-rural areas the Agency will guarantee only
the portion of the project necessary to provide the essential services
to rural areas.
(d) Service area. (1) The project must be installed to serve any
user within the Service Area who desires service and can be feasibly
and legally served.
(2) The lender must determine that, when feasible and legally
possible, inequities within the project's service area for the same
type service proposed will be remedied by the borrower on, or before,
completion of the project. Inequities are defined as unjustified
variations in availability, adequacy, or quality of service. User rate
schedules for portions of existing systems or facilities that were
developed under different financing, rates, terms, or conditions do not
necessarily constitute inequities.
Sec. 5001.105 Eligible B&I projects and requirements.
For a B&I project to be eligible for a loan guarantee under this
part, it must meet the criteria specified in Sec. 5001.102 and this
section and be for a borrower eligible to submit an application for the
project in accordance with Sec. 5001.126.
(a) Purpose. The purpose of the project must be to improve,
develop, or finance business, industry, and employment and improve the
economic and environmental climate in rural communities; the
conservation, development, and use of water for aquaculture purposes;
and reducing reliance on nonrenewable energy resources through
development and construction of solar energy and other renewable energy
systems.
(b) Type of project. The project must be for one or more of the
uses described in paragraphs (b)(1) through (22) of this section.
(1) Purchase and development of land, buildings, and associated
infrastructure for commercial or industrial properties, including
expansion or modernization.
(2) Business acquisitions, start-ups, and expansions if jobs will
be created or saved. A business acquisition is considered the
acquisition of an entire business, not a partial stock acquisition in a
business. However, acquisition or change of ownership between existing
owners is an eligible project when the remaining owner(s) held their
ownership and actively participated in the business operation for at
least the past 24 months and the selling owner will not retain any
ownership interest in the business directly or indirectly including
through other entities or trusts or property rights.
(3) Purchase and installation of machinery and equipment.
(4) Startup costs, working capital, inventory, and supplies in the
form of a permanent working capital term loan.
(5) Pollution control and abatement.
(6) Purchase of membership, stocks, bonds, or debentures necessary
to obtain a loan from a member owned lending institution provided the
purchase is required for all their borrowers and is the minimum amount
required.
(7) Agricultural production, when not eligible for Farm Service
Agency (FSA) farm loan programs assistance and when it is part of an
integrated business also involved in the processing of agricultural
products. Any agricultural production considered for guaranteed loan
financing must be owned, operated, and maintained by the business
receiving the guaranteed loan.
(i) The agricultural production portion of any loan must not exceed
50 percent of the total loan or $5 million, whichever is less.
(ii) This paragraph does not preclude financing the following types
of businesses:
(A) Commercial nurseries engaged in the production of ornamental
plants, trees, and other nursery products, such as bulbs, flowers,
shrubbery, flower and vegetable seeds, sod, and the growing of plants
from seed to the transplant stage;
(B) Forestry, which includes businesses primarily engaged in the
operation of timber tracts, tree farms, forest nurseries, harvesting of
forest products, and related activities, such as reforestation;
(C) The growing or harvesting of mushrooms;
(D) The growing of hydroponics;
(E) The boarding and/or training of animals;
(F) Commercial fishing; and
(G) Production of algae and aquaculture, including conservation,
development, and utilization of water for aquaculture.
(8) Tourist and recreation facilities, including hotels, motels,
bed and breakfast establishments, and resort trailer parks and
campgrounds.
(9) Educational or training facilities.
(10) CF projects consistent with Sec. 5001.103 when not eligible
for financing through Rural Housing Service or Community Facilities
programs.
(11) Industries undergoing adjustment from terminated Federal
agricultural price and income support programs or increased competition
from foreign trade.
(12) Constructing or equipping facilities for lease to private
businesses engaged in commercial or industrial operations.
(13) Financing for mixed-use properties involving both commercial
business and residential space is authorized, provided that not less
than 50 percent of the business's projected revenue will be generated
from business use.
(14) Leasehold improvements when the lease contains no reverter
clauses or restrictive clauses that would impair the use or value of
the property as security for the loan. The term of the lease must be
equal to or greater than the term of the loan, unless otherwise
mitigated by the lender and approved by the Agency.
(15) Projects that process, distribute, aggregate, store, and/or
market locally or regionally produced agricultural food products to
support community development and farm and ranch income.
(i) Subject to each of the following, projects may be located in
non-rural areas as well as in rural areas if the project:
(A) Expands or preserves the availability of staple food in
underserved areas with moderate and low-income populations by
maintaining or increasing the number of retail or institutional outlets
that offer an assortment of healthy perishable foods and staple food
items;
(B) The project will create or retain quality jobs for low-income
residents of the community;
(C) A significant amount of the food is locally or regionally
produced and sold; and
(D) Includes an appropriate agreement with retail and institutional
clients to
[[Page 42530]]
inform consumers that they are purchasing or consuming locally or
regionally produced agricultural food products.
(ii) The Agency will give funding priority to projects that provide
a benefit to underserved communities in accordance with Sec.
5001.318(d)(5) of this part.
(16) The purchase of cooperative stock by individual farmers or
ranchers in a farmer or rancher cooperative or the purchase of
transferable cooperative stock in accordance with Sec. 5001.140(a) and
(b); or the purchase of stock in a business by employees forming an
ESOP or worker cooperative in accordance with Sec. 5001.140(d).
(17) The purchase of preferred stock or similar equity issued by a
cooperative or a loan to a fund that invests primarily in cooperatives
in accordance with Sec. 5001.140(c).
(18) Loans to cooperatives:
(i) Guaranteed loans to eligible cooperative may be made in
principal amounts up to $40 million if the project is located in a
rural area, the cooperative facility being financed provides for the
value-added processing of agricultural commodities, and the total
amount of guaranteed loans exceeding $25 million does not exceed 10
percent of the funds available for the fiscal year. Guaranteed loans in
excess of $25 million in accordance with this provision may only be
approved by the Secretary, whose authority may not be redelegated.
(ii) Guaranteed loans to eligible cooperative may also be made in
non-rural Areas provided:
(A) The primary purpose of the guaranteed loan is for a facility to
provide value-added processing for agricultural producers that are
located within 80 miles of the facility;
(B) The borrower satisfactorily demonstrates that the primary
benefit of the guaranteed loan will be to provide employment for rural
residents;
(C) The principal amount of the guaranteed loan does not exceed $25
million; and
(D) The total amount of guaranteed loans guaranteed under this
paragraph does not exceed 10 percent of the funds available for the
fiscal year.
(iii) An eligible cooperative may refinance an existing B&I
guaranteed loan if the existing loan is current and performing, the
existing loan is not and has not been in monetary default or the
collateral has not been converted, and there is adequate security and
collateral for the new guaranteed loan.
(19) Taxable corporate bonds when the bonds are fully amortizing
and comply with all provisions of this part, bond proceeds were used
for an eligible purpose in this part, and the lender as bond holder
retains the percent of the bond in accordance with Sec. 5001.408(3)(i)
of this part. The bonds must be fully secured with collateral in
accordance with Sec. 5001.202(b)(4) of this part. The bonds must only
provide for a trustee when the trustee is totally under the control of
the lender. The bonds must provide no rights to bond holders other than
the right to receive the payments due under the bond. For instance, the
bonds must not provide for bond holders replacing the trustee or
directing the trustee to take servicing actions, such as accelerating
the bonds. In accordance with Sec. 5001.127(f), convertible bonds are
not eligible under this paragraph due to the potential conflict of
interest of a lender having an ownership interest in the borrower. An
explanation of the type of bond and other bond stipulations must be
attached to the bond.
(i) The bond issuer must obtain the services and opinion of an
experienced bond counsel, who must present a legal opinion stating that
the bonds are legal, valid, and binding obligations of the issuer and
that the issuer has adhered to all applicable laws.
(ii) The bond holder (lender) must purchase all the bonds issued
pursuant to the guaranteed and comply with all Agency regulations.
There must be a bond purchase agreement between the issuer and the bond
holder. The bond purchase agreement must contain similar language to
that required in a loan agreement and must not conflict with this part.
The bond holder is responsible for all servicing of the guaranteed loan
evidenced by the bond, although the bond holder may contract for
servicing assistance, including contracting with a trustee who remains
under the lender's total control.
(20) Nursing homes and assisted living facilities where constant
medical care is provided and available onsite to the residents.
Independent living facilities are not eligible in accordance with Sec.
5001.118(a).
(21) Development and construction of RES, including modification of
existing systems that are commercially available and that are not
otherwise eligible under REAP, or if funding is and not available in
the eligible REAP.
(22) Integrated processing equipment and systems, such as
biorefineries, renewable energy systems, and chemical manufacturing
facilities, must utilize commercially available technology, equipment,
and systems and demonstrate technical merit. The Agency will evaluate
the following areas in making the technical merit determination:
(i) Qualifications of the project team;
(ii) Agreements and permits;
(iii) Resource assessment;
(iv) Design and engineering;
(v) Project development;
(vi) Equipment procurement and installation; and
(vii) Operations and maintenance.
(c) Facility location. The project must be located in a rural area,
except for loans to cooperative in accordance with paragraph
(b)(18)(ii) of this section and for loans to local foods projects in
accordance with paragraph (b)(15)(i) of this section where such
projects may also be located in non-rural areas. For an eligible
project that located in both rural and non-rural areas, the Agency will
guarantee only the amount necessary to finance that portion of the
project located in the eligible rural area.
(d) Capital and equity. Borrowers are required to have sufficient
capital or equity to mitigate the ongoing financial and operational
risks of the business. Balance sheet equity will be determined based
upon current and projected borrower financial statements. The following
capital and equity requirements must be met at the time of lender's
closing of the guaranteed loan.
(1) Existing businesses must meet one of the following
requirements:
(i) A minimum of 10 percent balance sheet equity (including
subordinated debt when subject to a standstill agreement), or a maximum
debt-to-balance sheet equity ratio of 9 to 1, at loan closing;
(ii) A 10 percent or more of total eligible project costs, borrower
investment of equity or other funds into the project including grants
or subordinated debt when subject to a standstill agreement;
(iii) Balance sheet equity includes owner-contributed capital of
ten percent or more of total fixed assets (net total fixed assets plus
depreciation.)
(2) New businesses with sales contract(s) with proceeds in an
amount adequate to meet debt service and the term of the sales
contract(s) are at least equal to the term of the guaranteed loan, and
subject to Agency acceptance of the credit worthiness of the
counterparty, the borrower must meet one of the following requirements:
(i) A minimum of 10 percent balance sheet equity (including
subordinated debt when subject to a standstill agreement), or a maximum
debt-to-balance sheet equity ratio of 9 to 1 at loan closing; or
(ii) Borrower investment of equity or other funds (including
subordinated debt when subject to a standstill agreement and grants)
into the project in
[[Page 42531]]
an amount of 10 percent or more of total eligible project cost;
(3) New businesses with a project involving construction and when
the lender will request the loan note guarantee prior to completion of
construction must meet one of the following requirements:
(i) A minimum of 25 percent balance sheet equity at guaranteed loan
closing; or
(ii) Borrower investment of equity or other funds into the project
in an amount of 25 percent or more of total eligible project cost;
(4) All other borrowers that are new businesses must meet one of
the following requirements:
(i) A minimum of 20 percent balance sheet equity, or a maximum
debt-to-equity ratio of 4 to 1, at guaranteed loan closing, or;
(ii) Borrower investment of equity or other funds into the project
in an amount of 25 percent or more of total eligible project cost;
(5) Variances in capital and equity requirements:
(i) Increases. The Agency may increase the capital or equity
requirement specified under paragraphs (d)(1) through (4) of this
section for guaranteed loans the Agency determines carry a higher risk.
In determining whether a project or guaranteed loan carries a higher
risk, the Agency will consider the current status of the industry,
concentration of the industry in the Agency's portfolio, collateral
coverage, value of personal or corporate guarantees, cash flow, and
contractual relationships with suppliers and buyers; credit rating of
the borrower; and the strength of the feasibility study and experience
of management. The Agency may also increase the capital or equity
requirement for new businesses using integrated processing equipment
and systems such as biorefineries, renewable energy systems, chemical
manufacturing facilities, and businesses producing new products to sell
into new and emerging markets.
(ii) Reductions. The Agency may reduce the minimum equity
requirement for an existing business when personal or corporate
guarantees are obtained in accordance with Sec. 5001.204 of this part;
and all pro forma and historical financial statements indicate the
business to be financed meets or exceeds the median quartile (as
identified in the Risk Management Association's Annual Statement
Studies or similar publication) for the current ratio, quick ratio,
debt-to-worth ratio, and debt service coverage ratio.
(6) Certification: The lender must certify that, as of the date the
guaranteed Loan was closed, its credit analysis indicated that the
borrower had sufficient capital or equity to mitigate the financial and
operational risks of the business, and that the borrower met the
minimum equity required by the Agency in its conditional commitment, or
that the minimum borrower capital contribution toward project costs, as
applicable and required by the Agency, was met. A copy of the
borrower's loan closing balance sheet must be included with the
lender's certification.
Table 1 to Sec. 5001.105(d)--Capital Equity Requirements Summary
----------------------------------------------------------------------------------------------------------------
Borrower must meet one of the following at the time of the
closing of the guaranteed loan:
-----------------------------------------------------------------
Balance sheet equity
Borrower Borrower investment includes owner
Percent balance as percent of total contributed capital
sheet equity: eligible project as percentage of
cost: total fixed assets:
----------------------------------------------------------------------------------------------------------------
Existing Business............................. >=10 >=10 >=10
Borrowers that are new businesses with sales >=10 >=10 N/A
contract(s) adequate to meet debt service and
the term of the sales contract(s) are at
least equal to the term of the guaranteed
loan.........................................
Borrowers that are new businesses for a >=25 >=25 N/A
project involving construction and the lender
will request the loan note guarantee prior to
completion of construction...................
All other borrowers that are new businesses... >=20 >=25 N/A
----------------------------------------------------------------------------------------------------------------
Sec. 5001.106 Eligible REAP--Renewable Energy System (RES) projects
and requirements.
For a REAP RES Project to be eligible for a loan guarantee under
this part, it must meet the criteria specified in Sec. 5001.102(a)
through (c) and in paragraphs (a) through (e) of this section and be
for a borrower eligible to submit an application for the project in
accordance with Sec. 5001.126. If taxable bonds are utilized as debt
instruments the provisions of Sec. 5001.105(b)(19) must be met.
(a) The project must be for--
(1) The purchase of a new or existing RES;
(2) The purchase of a refurbished RES; or
(3) The retrofitting of an existing RES.
(4) For the purposes of this section, only those hydroelectric
sources with a rated power of 30 megawatts or less are an eligible RES.
(b) The RES project must use commercially available technology.
(c) The RES project must be located in a rural area unless the
borrower is an agricultural producer and the application supports the
production, processing, vertical integration, or marketing of
agricultural products. If the agricultural producer's operation is in a
non-rural area, then the application can only be for RES components
that are:
(1) Directly related to, and their use and purpose is limited to
the agricultural production operation, such as vertically integrated
operations; and
(2) Part of and co-located with the agricultural production
operation.
(d) Where a residence is closely associated with an agricultural
operation or rural small business to be served by the RES project, 50
percent or more of the energy to be generated by the RES project must
be used by the agricultural operation or rural small business. This
provision must be documented with the application and can be
demonstrated using either of the methods identified in paragraphs
(d)(1) and (2) of this section.
(1) Provide a renewable energy site assessment or other
documentation and calculations that demonstrate based on historical
energy use that 50 percent or more of the energy to be produced by the
RES project will be used in the agricultural operation or rural small
business. This includes documentation on historical residential energy
use. The
[[Page 42532]]
Agency may request additional data to determine residential versus
business or agricultural operation usage. The actual percentage of
energy determined to benefit the rural small business or agricultural
operation will be the basis to determine eligible project costs.
(2) The borrower may install or elect to conditionalize funding
upon the installation of a device (such as a second meter) that results
in 100 percent of the energy generated by the RES Project to be used
only by the agricultural operation or rural small business.
(e) The RES project must have technical merit. The Agency will use
the information provided in the technical report submitted with the
application (see Sec. 5001.307(e) of this part) to determine if the
project has technical merit. In making this determination, the Agency
may engage the services of other Government agencies or other
recognized industry experts in the applicable technology field, at its
discretion, to evaluate the technical report.
(1) Technical report areas. When making its technical merit
determination, the Agency will evaluate the technical report using the
areas specified in paragraphs (e)(1)(i) through (iii) of this section
as applicable.
(i) RES projects with total project costs of $80,000 or less. For
these projects, the Agency will evaluate the following areas in making
the technical merit determination:
(A) Project description;
(B) Resource assessment;
(C) Project economic assessment; and
(D) Qualifications of key service providers.
(ii) RES projects with total project costs of less than $200,000,
but more than $80,000. For these projects, the Agency will evaluate the
following areas in making the technical merit determination:
(A) Project description;
(B) Resource assessment;
(C) Project economic assessment;
(D) Project construction and equipment; and
(E) Qualifications of key service providers.
(iii) RES projects with total project costs of $200,000 and
greater. For these projects, the Agency will evaluate the following
areas in making the technical merit determination:
(A) Qualifications of the project team;
(B) Agreements and permits;
(C) Resource assessment;
(D) Design and engineering;
(E) Project development;
(F) Equipment procurement and installation; and
(G) Operations and maintenance.
(2) Pass/pass with conditions/fail assignments. The Agency will
assign each area of the technical report, as specified in paragraph
(e)(1) of this section, a ``pass,'' ``pass with conditions,'' or
``fail.'' An area will receive a ``pass'' if the information provided
for the area has no weaknesses and meets or exceeds any requirements
specified for the area. An area will receive a ``pass with conditions''
if the information provided for the area has minor weaknesses which
could be conditioned and reasonably resolved by the borrower.
Otherwise, if the information provided for the area is conclusively
deemed to be a major weakness, the area will receive a fail.
(3) Determination. The Agency will compile the results for each
area of the technical report to determine if the Project has technical
merit.
(i) A project whose technical report receives a ``pass'' in each of
the applicable areas will be considered to have ``technical merit.''
(ii) A project whose technical report receives a ``pass with
conditions'' in one or more the applicable areas will be considered to
have ``conditional technical merit.''
(iii) A project whose technical report receives a ``fail'' in any
one area will be considered to be ``without technical merit.''
(4) Further processing of applications. A project that is
determined to have ``technical merit'' or ``conditional technical
merit'' is eligible for further consideration for funding. Projects
with ``conditional technical merit'' would be subject to funding
conditions that would need to be met to ensure full technical merit
prior to completion of the project. A project that is determined to be
``without technical merit'' is not eligible to compete for funding.
Sec. 5001.107 REAP--Energy Efficiency Improvement (EEI) projects and
requirements.
For a REAP EEI project to be eligible for a loan guarantee under
this part, it must meet the criteria specified in Sec. 5001.102(a)
through (c) and also specified in paragraphs (a) through (d) of this
section and be for a borrower eligible to submit an application for the
project in accordance with Sec. 5001.126. If taxable bonds are
utilized as debt instruments the provisions of Sec. 5001.105(b)(19)
must be met.
(a) The EEI project must use less energy on an annual basis than
the original building and/or equipment that it will improve or replace
as demonstrated in an energy Assessment or energy Audit as applicable.
(1) If the project's total project cost is greater than $80,000,
the energy assessment must be conducted by an energy auditor, an energy
assessor, or an individual supervised by either an energy assessor or
energy auditor. The final energy assessment must be validated and
signed by the energy assessor, the energy auditor who conducted the
energy assessment, or by the supervising energy assessor or energy
auditor of the individual who conducted the assessment, as applicable.
(2) If the project's total project cost is $80,000 or less, the
energy assessment may be conducted in accordance with paragraph (a)(1)
of this section or by a person that has at least 3 years of experience
and completed at least five energy assessments or energy audits on
similar type projects. Eligible EEI include, but are not limited to:
(1) Efficiency improvements to existing RES; and
(2) Construction of a new building only when the new building is
used for the same purpose as the existing building and if, based on an
energy assessment or energy audit, as applicable, it is more cost
effective to construct a new building that will use less energy on
annual basis than to improve the energy efficiency of the existing
building.
(b) The EEI project must be for a commercially available
technology.
(c) The EEI project must be located in a rural area unless the
borrower is an agricultural producer and the Application supports the
production, processing, vertical integration, or marketing of
agricultural products. If the agricultural producer's operation is in a
non-rural area, then the application can be for only EEI components
that are:
(1) Directly related to and have a use and purpose limited to an
agricultural production operation such as vertically integrated
operations; and
(2) Part of and co-located within the agricultural production
operation.
(d) The EEI project must have technical merit. The Agency will use
the information provided in the technical report submitted with the
application (see Sec. 5001.307(e)) to determine whether the project
has technical merit. In making this determination, the Agency may, at
its discretion, engage the services of other Government agencies or
other recognized industry experts in the applicable technology field to
evaluate and rate the technical report.
(1) Technical report areas. When making its technical merit
determination, the Agency will evaluate the technical report using the
areas
[[Page 42533]]
specified in paragraphs (d)(1)(i) and (ii) of this section as
applicable.
(i) EEI project with total project costs of $80,000 or less. For
these projects, the Agency will evaluate the following areas to
determine the technical merit:
(A) Project description;
(B) Qualifications of EEI provider(s); and
(C) Energy assessment (or energy audit if applicable).
(ii) EEI projects with total project costs of greater than $80,000.
For these projects, the Agency will evaluate the following areas to
determine the technical merit:
(A) Project information;
(B) Energy assessment (or energy audit as applicable); and
(C) Qualifications of the contractor or installers.
(2) Pass/pass with conditions/fail assignments. The Agency will
assign each area of the technical report, as specified in paragraph
(d)(1) of this section, a ``pass,'' ``pass with conditions,'' or
``fail'' according to provisions of Sec. 5001.106(e)(2).
(3) Determination. The Agency will compile the results for each
area of the technical report to determine if the project has technical
merit in accordance with provisions of Sec. 5001.106(e)(3).
(4) Further processing of applications. Projects will be further
processed in accordance with provisions of Sec. 5001.106(e)(4).
Sec. 5001.108 Eligible REAP--Energy Efficient Equipment and Systems
(EEE) projects and requirements.
For a REAP EEE project to be eligible for a loan guarantee under
this part, it must meet the criteria specified in Sec. 5001.102(a)
through (c) and in paragraphs (a) through (d) of this section and be
for a borrower that is an agricultural producer eligible to submit an
application for the project in accordance with Sec. 5001.126. If the
borrower plans to use taxable bonds as debt instruments the provision
Sec. 5001.105(b)(19) must be met.
(a) The project must be for the purchase and installation of energy
efficient equipment or systems for agricultural production or
processing that exceed the following standards:
(1) Energy efficiency building codes, if available;
(2) Federal or State energy efficiency standards, if available; and
(3) Other energy efficiency standards determined appropriate by the
Secretary.
(i) If no codes or standards described in such subparagraph apply
to the energy efficient equipment or system to be purchased or
installed pursuant to such subparagraph, the Secretary shall require,
to the maximum extent practicable, such equipment or systems to meet
the same efficiency measurements as the most efficient available
equipment or system in the market; and
(ii) The Secretary shall not provide such a loan guarantee for the
purchase or installation of any energy efficient equipment or system
unless more than one type of such equipment or system is available in
the market.
(b) The EEE project must be for commercially available technology.
(c) The EEE project must have technical merit as certified by the
vendor/installer. An application that does not include said
certification will be deemed incomplete and therefore is not eligible
to compete for funding.
Sec. Sec. 5001.109-5001.114 [Reserved]
Sec. 5001.115 Ineligible projects--general.
The Agency will not issue a loan guarantee under this part for any
of the projects identified in this section, unless otherwise noted. The
following are ineligible projects for the CF, WWD, B&I and REAP
programs:
(a) Any investment or arbitrage, or any speculative real estate
investment other than cooperative stock, transferable stock,
cooperative equity in accordance with Sec. 5001.140 and NMTC projects
in accordance with Sec. 5001.141.
(b) Golf courses and golf course infrastructure, including par-3
and executive golf courses; racetracks or facilities for the conduct of
races by animals, professional or amateur drivers or jockeys; for-
profit zoos or safaris; and publicly-owned or non-profit amusement
parks, water parks, and similar recreational type facilities inherently
commercial in nature and primarily used for recreational purposes.
(c) Motion pictures and theatrical productions.
(d) Funding of political or lobbying activities.
(e) Guaranteeing loans made by other Federal agencies, lines of
credit, or lease payments.
(f) Projects that the Agency determines create, directly or
indirectly, a conflict of interest.
(g) Properties to be used for primarily commercial rental when the
borrower has no control over tenants and services offered, except for
industrial-site infrastructure development.
(h) Projects that utilize technology, equipment, or systems that
are not commercially available.
(i) Projects that will violate the requirements of 7 CFR part 1970,
or any statutes or Executive Orders regarding environmental
requirements.
(j) Projects used primarily for the purpose of housing Federal,
State, or quasi-Federal agencies, unless it is typical of the area for
communities to provide this space.
(k) Community antenna television and radio services or facilities.
(l) Telephone systems.
(m) New combined sanitary and storm water sewer facilities.
(n) Owner-occupied housing or self-storage facilities.
(o) Loans on which the interest is excludable from income under
current or a successor statute of the Internal Revenue Code. Funds
generated through the issuance of tax-exempt obligations cannot be used
to purchase the guaranteed portion of any Agency guaranteed loan and an
Agency guaranteed loan cannot serve as collateral for a tax-exempt
issue.
(p) Residential EEI projects.
(q) Except as provided in Sec. 5001.106(d), residential RES
projects.
(r) Loans supporting inherently religious activities, such as
worship, religious instruction, proselytization, or to pay costs
associated with acquisition, construction, or rehabilitation of
structures for inherently religious activities, including the financing
of multi-purpose facilities where religious activities will be among
the activities conducted. However, religious organizations may
participate in projects eligible for funding under section 306(a)(24)
of the Consolidated Farm and Rural Development Act, 7 U.S.C.
1926(a)(24), provided they do not use Agency assistance for inherently
religious activities in accordance with 7 CFR part 16, ``Equal
Opportunity for Religious Organizations.''
Sec. 5001.116 Ineligible CF projects.
The following are ineligible projects for the CF program only:
(a) For industrial park sites, the financing of on-site utility
systems or business and industrial buildings.
(b) Inherently commercial enterprises: This type of project is
typically operated by a private enterprise with an essential
characteristic to produce profits. This term does not include projects
operated by private enterprises on a not-for-profit basis that provide
education, childcare, geriatric care, or health care to rural
communities. Inherently commercial enterprises include but are not
limited to grocery stores; television and radio services or facilities;
that portion of a water and/or waste disposal facility normally
provided by a business or industrial user; and telecommunication
facilities or services, including
[[Page 42534]]
broadband or fiber network services that do not meet the requirements
of Sec. 5001.103(a)(6);
(c) Projects where construction is completed prior to filing an
application with the Agency. This restriction applies to construction
completed by or for the borrower and does not preclude the purchase or
acquisition of a building constructed by an independent third party or
refinancing of debt in accordance with Sec. 5001.102(d).
(d) Projects where the borrower acts to circumvent the regulations
provided in this subpart, causing the borrower or project being
eligible when, previously, the borrower or project was ineligible.
(e) Projects involving the purchase of existing facilities in which
the transaction's purpose is to primarily retire the debt of the seller
in order for the seller to continue to use the facility at a lower
cost.
Sec. 5001.117 Ineligible WWD projects
The following are ineligible projects for the WWD programs only:
(a) That portion of a project normally provided by a business or
industrial user, such as wastewater pretreatment.
(b) Provided the existing borrower has the capacity to provide
adequate service to their service territory, guaranteed loan funds may
not be used to take away customers or service areas of existing USDA
WWD Program direct or guaranteed loan borrowers. The requirements and
limitations of 7 U.S.C. 1926(b) only apply to this section.
(c) Projects where the borrower acts to circumvent the regulations
provided in this subpart, causing the borrower or project being
eligible when, previously, the borrower or project was ineligible.
(d) Projects involving the purchase of existing facilities in which
the transaction's purpose is to primarily retire the debt of the seller
in order for the seller to continue to use the facility at a lower
cost.
Sec. 5001.118 Ineligible B&I projects
The following are ineligible projects for the B&I program only:
(a) The financing of timeshares, residential trailer parks,
apartments, duplexes, or other residential housing where the primary
purpose is independent housing except as authorized in Sec.
5001.105(b)(8), or housing development sites except as authorized in
Sec. 5001.105(b)(1).
(b) Projects eligible for funding under B&I that are in excess of
$1 million that would either:
(1) Likely result in the transfer of jobs from one area to another
and increase direct employment by more than 50 employees. However, this
limitation is not to be construed to prohibit assistance for the
expansion of an existing business entity through the establishment of a
new branch, affiliate, or subsidiary of such entity if the
establishment of such branch, affiliate, or subsidiary will not result
in an increase in unemployment in the area of original location or in
any other area where such entity conducts business operations. An
exception is when there is reason to believe that such branch,
affiliate, or subsidiary is being established with the intention of
closing down the operations of the existing business entity in the area
or its original location or in any other area where it conducts such
operations; or
(2) Increase direct employment by more than 50 employees, which is
calculated to or likely to result in an increase in the production of
goods, materials, commodities, or the availability of services or
facilities in the area when there is not sufficient demand for such
goods, materials, commodities, services, or facilities to employ the
efficient capacity of existing competitive commercial or industrial
enterprises, unless such financial or other assistance will not have an
adverse effect upon existing competitive enterprises in the area.
(3) The financing of timeshares, residential trailer parks,
apartments, duplexes, or other residential housing where the primary
purpose is independent housing except as authorized in Sec.
5001.105(b)(8), or housing development sites except as authorized in
Sec. 5001.105(b)(1).
Sec. 5001.119 Ineligible REAP projects.
Owner occupied bed and breakfasts are ineligible projects in the
REAP program.
Sec. 5001.120 [Reserved]
Sec. 5001.121 Eligible uses of loan funds.
Guaranteed loan funds can only be used for the items specified in
this section.
(a) CF projects. Guaranteed loan funds for an essential CF project
receiving a loan guarantee under Sec. 5001.1 may be used to pay the
expenses identified in paragraphs (a)(1) through (3) of this section.
(1) When necessary to ensure the successful operation or protection
of the project authorized in Sec. 5001.103, subpart B:
(i) Costs for the construction or relocation of public buildings,
roads, bridges, fences, utilities, or to make other public
improvements; and
(ii) Costs for the relocation of private buildings, roads, bridges,
fences, or utilities, and other private improvements.
(2) To pay the cost of conduit, such as pipe, tube, or tile for
protecting electric wires or cables, and its installation in
conjunction with financing facilities authorized in Sec. 5001.103,
subpart B, when the cost of the conduit is less than 25 percent of the
total project cost. The Borrower must be the owner of the conduit. The
conduit must be installed at the time of project construction and must
be for public use.
(3) When necessary as part of a guaranteed loan to finance a
project:
(i) Guarantee fees, as determined under Sec. 5001.454;
(ii) Lender fees, as provided in Sec. 5001.403;
(iii) Professional service fees and charges provided the Agency
agrees that the amounts are reasonable and customary in the area;
(iv) Interest on guaranteed loans until the facility is self-
supporting, but not for more than three years; interest on guaranteed
loans secured by general obligation bonds until tax revenues are
available for payment, but not for more than two years; and interest on
interim financing;
(v) Costs of acquiring interests in land, rights (e.g., water
rights, leases, and permits), rights-of-way, and other evidence of land
or water control necessary for development of the project;
(vi) Costs of purchasing or renting equipment necessary to install,
maintain, extend, protect, operate, or utilize facilities;
(vii) Obligations for construction worked performed prior to filing
an Application with the Agency. Construction work must not be started
(and obligations for such work or materials must not be incurred)
before the conditional commitment is issued. If there are compelling
reasons for proceeding with construction before the conditional
commitment is issued, lenders may request Agency approval to pay such
obligations and not jeopardize receipt of a loan guarantee from the
Agency. Such request must comply with the following conditions:
(A) Provide conclusive evidence that the contract was entered into
without intent to circumvent the Agency regulations, including but not
limited to 7 CFR part 1970;
(B) Modify the outstanding contract to conform to the provisions of
this part. When this is not possible, modifications will be made to the
extent practicable and, at a minimum, the contract must comply with all
State and local laws and regulations as well as statutory
[[Page 42535]]
requirements and Executive Orders related to the Agency guarantee.
(C) When construction is complete and it is impracticable to modify
the contract, the borrower and lender must provide a certification by
an engineer or architect that any construction performed complies fully
with the plans and specifications; and
(D) The borrower and the contractor must have complied with all
statutory and Executive Order requirements related to the Agency
guarantee for construction already performed even though the
requirements may not have been included in the contract documents.
(b) WWD projects. Guaranteed loan funds for a WWD project receiving
a loan guarantee may be used to pay the expenses identified in
paragraphs (b)(1) through (10) of this section when they are a
necessary part of the WWD project.
(1) Guarantee fees, as determined under Sec. 5001.454.
(2) Lender fees, as provided in Sec. 5001.403.
(3) Professional service fees and charges provided the Agency
approves the amounts as reasonable and customary in the area.
(4) Costs of acquiring interests in land, rights (e.g., water
rights, leases, permits, rights-of-way), and other evidence of land or
water control or protection necessary for development of the project.
(5) Purchasing or renting equipment necessary to install, maintain,
extend, protect, or operate the project.
(6) Cost of additional borrower labor and other expenses necessary
to install and extend service.
(7) Interest incurred during construction in conjunction with
interim financing.
(8) Initial operating expenses, including interest, for a period
ordinarily not exceeding one year when the borrower is unable to pay
such expenses.
(9) The purchase of existing facilities when it is necessary either
to improve service or prevent the loss of service.
(10) Purchase of equipment to operate, maintain, or protect
facilities.
(c) B&I projects. Guaranteed loan funds for a project receiving a
loan guarantee under Sec. 5001.1 may be used to pay the expenses
identified in paragraphs (c)(1) through (12) of this section.
(1) Purchase and development of land, buildings, and associated
infrastructure for commercial or industrial properties, including
expansion or modernization.
(2) Business acquisitions provided that jobs will be created or
saved. A business acquisition is considered the acquisition of an
entire business, not a partial stock acquisition in a business.
However, acquisition or change of ownership between existing owners is
an eligible use of loan funds when the remaining owner(s) held their
ownership and actively participated in the business operation for at
least the past 24 months and the selling owner will not retain any
ownership interest in the business directly or indirectly including
through other entities or trusts or property rights.
(3) Purchase of machinery and equipment.
(4) Startup costs, working capital, inventory, and supplies in the
form of a permanent working capital term loan.
(5) Pollution control and abatement.
(6) Takeout of interim financing: Guaranteeing a loan that provides
for permanent, long-term financing after project completion to pay off
a lender's interim loan will not be treated as debt refinancing
provided that the lender submits a complete preapplication or
application that proposes such interim financing prior to closing the
interim loan. The borrower must take no action until the conclusion of
the environmental review process prior to any action that would have an
adverse effect on the environment or limit the choices of any
reasonable alternatives to be considered by the Agency.
(7) Guarantee fees, as determined under Sec. 5001.454.
(8) Lender fees, as determined under Sec. 5001.403.
(9) Professional service fees and charges, provided the Agency
approves the amounts as reasonable and customary in the area and fees
for construction permits and licenses.
(10) Feasibility studies and business plans.
(11) Interest (including interest on interim financing) during the
period before the first principal payment becomes due or when the
facility becomes income producing, whichever is earlier.
(d) REAP projects. Guaranteed loan funds for a Project receiving a
loan guarantee under REAP may be used to pay the expenses associated
with the items identified in paragraphs (d)(1) through (14) of this
section, provided such items are directly related to and their use and
purpose are limited to the RES, EEI, or EEE project. The expenses
associated with the items specified in paragraphs (d)(8) through (11)
of this section cannot exceed more than ten percent of the loan amount.
(1) Purchase and installation of new or refurbished RES.
(2) Purchase and installation of energy efficient equipment and
systems by eligible agricultural producers.
(3) Construction, retrofitting, replacement, and improvements.
(4) Energy efficiency improvements (EEI) identified by vendor/
installer certification or in the applicable energy assessment or
energy audit.
(5) Fees for construction permits and licenses, including fees
required by an interconnection agreement.
(6) Guarantee fees, as determined under Sec. 5001.454.
(7) Professional service fees and charges related to the project,
which may include non-deferred developer fees, provided the Agency
approves the amounts as reasonable and customary in the area.
(8) Lender fees, as provided in Sec. 5001.403.
(9) Working capital, which may include interest on interim
financing, debt reserves, rent payments, insurance, and packaging and
origination fees.
(10) Land acquisition.
(11) Energy assessments, energy audits, technical reports, business
plans, and feasibility studies completed and acceptable to the Agency,
provided no portion was financed by any other Federal or State grant or
payment assistance, including, but not limited to, a REAP energy audit
or renewable energy development assistance grant.
(12) For an eligible RES project in which a residence is closely
associated with the rural small business or agricultural operation, the
installation of a second meter to separate the residence from the
portion of the project that benefits the rural small business or
agricultural operation, as applicable.
(13) Land, building, and equipment for an existing RES.
(14) Refinancing outstanding debt when--
(i) The original purpose of the debt being refinanced meets the
eligible project requirements of Sec. 5001.106, Sec. 5001.107 or
Sec. 5001.108, as applicable, of this part;
(ii) Debt being refinanced does not exceed 50 percent of the total
use of funds in the new REAP guaranteed loan;
(iii) Refinancing is necessary to improve cash flow and viability
of the project;
(iv) At the time of application, the loan being refinanced has been
current for at least the past 6 months (unless such status is achieved
by the lender forgiving the borrower's debt); and
(v) The lender is providing better rates or terms for the loan
being refinanced.
Sec. 5001.122 Ineligible uses of loan funds.
Projects that receive a loan guarantee under this part cannot use
the
[[Page 42536]]
guaranteed loan funds for those expenses or purposes identified in
paragraphs (a) through (m) of this section and for any other item the
Agency identifies in accordance with Sec. 5001.10.
(a) Payment in excess of actual costs (e.g., profit, overhead,
indirect costs, and wages to owners) incurred by the contractor or
other service provider on a contract or agreement that has been entered
into at less than an arm's length transaction or has a potential for a
conflict of interest. In situations where there is common ownership or
an otherwise closely-related company is being paid to do construction
or installation work for a borrower, only documented costs associated
with the construction or installation can be paid with guaranteed loan
funds and cannot include any profit or wages to such related Person.
(b) Notwithstanding Sec. 5001.102(d), payment on any other Federal
loan or debt.
(c) Payment of a Federal judgment, State or Federal tax lien, or
other debt owed to the United States.
(d) Loan finder or broker fees.
(e) Refinancing debt that is owned by a loan packager or broker or
their respective affiliates.
(f) For loans as specified under CF and WWD, costs normally
provided by a business or industrial user (e.g., wastewater
pretreatment).
(g) For loans as specified under CF and WWD, any portion of the
cost of a project that does not serve a rural area.
(h) Rental for the use of equipment or machinery owned by the
borrower.
(i) For purposes not directly related to operating and maintaining
the project.
(j) Any EEI not identified in the applicable energy assessment or
energy audit.
(k) Agricultural tillage equipment, used equipment, and vehicles
are ineligible for loans as specified under REAP.
(l) Guaranteed loan funds cannot be used for the distribution or
payment to a member of the immediate family of an owner, partner,
stockholder, or member of the borrower except for a change in ownership
of the business where the selling person does not retain an ownership
interest and the Agency determines in writing the price paid to be
reasonable based upon an independent appraisal. This prohibition does
not apply to transfers of ownership for ESOPs or worker cooperatives,
to cooperatives where the cooperative pays the member for product or
services, or where member stock is transferred among members of the
cooperative in accordance with Sec. 5001.140 of this part.
(m) For loans as specified under CF, initial operating expenses,
short-term, working capital or operating loans; or annual recurring
costs, including purchases or rentals that are generally considered to
be operating and maintenance expenses.
Sec. Sec. 5001.123-125 [Reserved]
Sec. 5001.126 Borrower eligibility.
To be eligible for a loan guarantee under this part, a Borrower
must meet the requirements specified in this section at the time of
each guaranteed loan's approval and through issuance of the loan note
guarantee. A borrower must meet the eligibility requirements specified
in paragraph (a) of this section and in paragraphs (b) through (e), as
applicable, of this section.
(a) Legal authority and responsibility. The borrower must have, or
obtain before issuance of the loan note guarantee, the legal authority
necessary to construct, operate, and maintain the proposed Project and
services and to obtain, give security for, and repay the proposed loan.
(1) Operating, maintaining, and managing the facility. The borrower
is responsible for operating, maintaining, and managing the facility
and providing for its continued availability and use. The borrower will
retain this responsibility even though the facility may be operated,
maintained, or managed by a third party under contract, management
agreement, or written lease. Leases may be used for certain projects
when they are the only feasible way to provide the service or facility,
are the customary practice to provide such service or facility within
the industry or in the State, and provide for the borrower's management
control of the Project. Contracts, management agreements, or written
leases must not contain options or other provisions for transfer of
ownership unless approved by the Agency.
(2) Co-borrowers. Except for CF guaranteed loans in situations
where any business or affiliate is dependent upon another's operations
and are effectively one business or rely upon one another for loan
repayment, they must be co-borrowers, unless waived by the Agency in
writing when the Agency determines that adequate justification exists
to not require the entities to be co-borrowers. Both co-borrowers must
meet all requirements in this part. If the operating entity is truly
independent and not reliant on another operation to remain viable or
repay the debt, the Agency will allow one entity to be the sole
borrower.
(b) CF loan guarantees. To be eligible for a loan guarantee under
CF, a borrower must meet the requirements identified in paragraphs
(b)(1) through (4) of this section.
(1) Borrower type. Be a public body, including Indian tribes on
Federal and State reservations and other federally recognized Indian
tribes, or non-profit organization.
(i) Borrowers organized under the applicable State or Tribal for-
profit corporation laws may be eligible if they will be operated on a
not-for-profit basis for the duration of the guaranteed loan;
(ii) Single member not-for-profit corporations or not-for-profit
corporations owned or substantially controlled by other corporations or
associations are eligible if the member organization has significant
ties with the project service area and provides a payment guarantee.
(2) Significant ties. Have significant ties with the project
service area (not applicable to public bodies and federally recognized
Tribes) as evidenced by the following:
(i) Association with or control by a public body or bodies; or
(ii) Broadly based membership and controlled primarily by members
residing in the project service area. Membership must be open without
regard to race, color, religion, national origin, sex, age, disability,
sexual orientation, or marital or familial status.
(3) Credit elsewhere. In accordance with 7 U.S.C. 1983, certify in
writing, subject to Agency verification, that the borrower is unable to
finance the proposed project from their own resources or through
commercial credit without a guarantee, at reasonable rates and terms. A
loan guarantee will not be provided to borrowers who are able to obtain
sufficient credit elsewhere to finance project costs at reasonable
rates and terms, taking into consideration prevailing private and
cooperative rates and terms in the community in or near where the
borrower resides, for loans for similar purposes and periods of time,
or to borrowers who are able to finance project costs from their own
resources.
(4) Evidence of significant community support. In accordance with 7
U.S.C. 2009h, the evidence shall be in the form of a certification of
support for the project from each affected local government. The
certification of support should include sufficient information to
determine that the essential community facility will provide needed
services to the community or communities and will have no adverse
impact on other community facilities providing similar services.
[[Page 42537]]
(c) WWD loan guarantees. To be eligible for a loan guarantee under
WWD, a borrower must meet the requirements identified in paragraphs
(c)(1) through (3) of this section.
(1) Borrower type. Be a public body, including Indian tribes on
Federal and State reservations and other Federally recognized Indian
tribes, or non-profit organization.
(2) Credit elsewhere. In accordance with 7 U.S.C. 1983, certify in
writing, subject to Agency verification, that the borrower is unable to
finance the proposed project from their own resources or through
commercial credit without a guarantee, at reasonable rates and terms. A
loan guarantee will not be provided to borrowers who are able to obtain
sufficient credit elsewhere to finance project costs at reasonable
rates and terms, taking into consideration prevailing private and
cooperative rates and terms in the community in or near where the
borrower resides, for loans for similar purposes and periods of time,
or to borrowers who are able to finance project costs from their own
resources.
(3) Evidence of significant community support. In accordance with 7
U.S.C. 2009h, the evidence shall be in the form of a certification of
support for the project from each affected local government.
(d) B&I loan guarantees. To be eligible for a loan guarantee under
B&I, a borrower must meet the requirements specified in paragraphs
(d)(1) through (4), as applicable, of this section.
(1) The borrower must be:
(i) A cooperative, corporation, partnership, or other legal entity
organized and operated on a profit or nonprofit basis;
(ii) An Indian Tribe
(iii) A Public Body; or
(iv) An individual.
(2) The borrower must be engaged in or proposing to engage in a
business. A business may include manufacturing, wholesaling, retailing,
providing services, or other activities that will provide employment or
improve the economic or environmental climate in rural communities.
(3) A borrower who is an individual must:
(i) Be a citizen of the United States;
(ii) Reside in the United States after being legally admitted for
permanent residence and must provide a permanent green card as evidence
of eligibility; or
(iii) Be a citizen or resident of the Republic of Palau, the
Federated States of Micronesia, American Samoa, Guam, the Commonwealth
of the Northern Mariana Islands, and the Republic of the Marshall
Islands.
(4) A borrower must demonstrate, to the Agency's satisfaction, that
guaranteed loan funds will remain in the United States and the Project
being financed will primarily create new or save existing jobs for
rural U.S. residents.
(e) REAP loan guarantees. To be eligible for a loan guarantee under
REAP, a borrower must meet the requirements specified in paragraphs
(e)(1) through (4) of this section.
(1) Type of borrower. The borrower must be either an agricultural
producer or a rural small business.
(2) Ownership. The borrower must:
(i) Own the project; and
(ii) Own or control the site for the project at the time of
application and for the term of the guaranteed loan.
(3) Revenues and expenses. The borrower must have available or be
able to demonstrate, at the time of application, satisfactory sources
of revenue in an amount sufficient to provide for the operation,
management, maintenance, and any debt service of the project for the
term of the loan. In addition, the borrower must control the revenues
and expenses of the project, including its operation and maintenance.
The borrower may employ a qualified consultant under contract to manage
revenues and expenses of the project and its operation and/or
maintenance.
(4) Matching funds. The borrower must demonstrate evidence of
injection of matching funds in the project of not less than 25 percent
of total eligible project costs. Passive third-party contributions are
acceptable as matching funds for RES projects, including those raised
from the sale of Federal tax credits.
Sec. 5001.127 Borrower ineligibility conditions.
A potential borrower is ineligible for a guaranteed loan under this
part as identified in paragraphs (a) through (g) of this section. The
borrower remains ineligible until the condition causing ineligibility
is resolved.
(a) An entity is ineligible if any of the conditions identified in
paragraphs (a)(1) through (4) of this section applies to the borrower,
any owner with more than 20 percent ownership interest in the borrower,
or any owner with control of the borrower.
(1) There is an outstanding judgment obtained by the U.S. in a
Federal Court (other than U.S. Tax Court).
(2) Delinquency on the payment of Federal income taxes.
(3) Delinquency on a Federal Debt.
(4) Debarment or suspension from receiving Federal assistance.
(b) An entity is ineligible if it derives more than 15 percent of
its annual gross revenue (including any lease income from space or
machines) from gambling activity, excluding State-authorized lottery
proceeds or Tribal-authorized gaming proceeds, as approved by the
Agency, conducted for the purpose of raising funds for the approved
project.
(c) An entity is ineligible if it derives income from activities of
a prurient sexual nature.
(d) An entity is ineligible if it derives income from illegal
drugs, drug paraphernalia, or any other illegal product or activity as
defined under Federal statute.
(e) An entity is ineligible under B&I projects if it is a
charitable or fraternal organization. For purposes of this section, an
organization that derives more than 10 percent of its annual gross
revenue from tax deductible charitable donations, based on historical
financial statements, is considered a charitable organization. Fees for
services rendered or that are otherwise ineligible for deduction under
the Internal Revenue Code are not considered tax deductible charitable
donations.
(f) An entity is ineligible if its lender or any of the lender's
officers has an ownership interest in the borrower or is an officer or
director of the borrower with management control or where the borrower
or any of its officers, directors, stockholders, or other owners have
more than a five percent ownership Interest in the lender. Any of the
lender's directors, stockholders, or other owners that are officers,
directors, stockholders, or other owners of the borrower must be
recused from any decision-making process associated with the guaranteed
loan.
(g) A borrower is ineligible if it is a lending institution,
investment institution, or insurance company with exception of REAP or
projects for a fund that invests primarily in cooperatives in
accordance with Sec. 5001.140, and NMTC projects in accordance with
Sec. 5001.141.
Sec. Sec. 5001.128-5001.129 [Reserved]
Sec. 5001.130 Lender eligibility requirements.
To become a lender under this part, the lending entity must meet
the requirements specified in paragraphs (a) through (d) of this
section, as applicable, and become an approved participant in the
Agency's electronic system. Paragraph (e) of this section contains
provisions associated with lenders that have already been approved by
the Agency under one of the guaranteed loan programs identified in
Sec. 5001.1of this part. If not yet an Agency-approved lender, the
lending entity must include with the application
[[Page 42538]]
a request for lender approval in accordance with this section.
(a) General. The lending entity must:
(1) Be domiciled in a State;
(2) Not be debarred or suspended by the Federal Government or be an
affiliated person of such entity that was suspended or debarred;
(3) Inform the Agency if it is under a consent order, or similar
constraint, from a Federal or State agency. The Agency will evaluate
the lending entity's eligibility on a case-by-case basis, and assess
the risk of loss posed by the consent order or similar constraint, as
applicable;
(4) Maintain written standards of conduct covering conflicts of
interest; and
(5) Maintain internal audit and management control systems to
evaluate and monitor the overall quality of its loan origination and
servicing activities.
(b) Regulated lending entities. Regulated lending entities
identified in paragraphs (b)(1) through (9) of this section are
eligible to receive a loan guarantee under this part without
documentation to the Agency provided they are subject to supervision
and credit examination by the applicable agency of the United States or
a State, or were created specifically by State statute and operate
under the direct supervision of a State government authority.
(1) Federal and State chartered banks.
(2) Farm Credit Bank of the Federal Land Bank and other Farm Credit
System institutions with direct lending authority to make loans of the
type guaranteed under this part.
(3) Bank for Cooperatives.
(4) Savings and Loan Associations.
(5) Savings banks.
(6) Mortgage companies that are part of a bank-holding company.
(7) The National Rural Utilities Cooperative Finance Corporation.
(8) Credit unions.
(9) State Bond Banks or State Bond Pools.
(c) Non-regulated lending entities. The Agency may approve a
lending entity that does not meet the criteria of paragraph (b) of this
section to become a lender for a period up to five years. Non-regulated
lending entity eligibility will expire on January 31 of the fifth year
after the date of Agency approval.
(1) Conditions. When the lending entity is a multi-tiered entity,
the Agency will consider the lending entity in its entirety. In order
to be approved as a lender, a non-regulated lending entity must:
(i) Have the legal authority to operate a lending program;
(ii) Be a financially sound institution that has a record of
successfully originating at least five commercial loans annually
totaling at least $1 million for each of the last three years, with the
lending entity's commercial loan portfolio in last five years not
exceeding:
(A) Six percent average delinquency of all commercial loans, and
(B) Three percent in commercial loan losses (based on the original
principal loan amount);
(iii) Have and agree to maintain balance sheet equity in accordance
with Section 5001.105(d) of this part of at least 10 percent of assets
and sufficient funds available to disburse the guaranteed loans it
proposes to approve within the first six months of being approved as a
Lender;
(iv) Have and agree to maintain a line of credit issued by a
regulated lending entity that is acceptable to the Agency;
(v) Agree to establish and maintain an Agency-approved loan loss
reserve equal to one percent reserve of the unguaranteed portion of all
guaranteed loans plus an amount equal to the identified anticipated
losses.
(vi) Have written policies and procedures to ensure that internal
credit controls provide adequate loan making and servicing guidance
that adheres to Federal and State fair lending practices;
(vii) Document and assure to the Agency that the lending entity has
the capacity to fulfill the lender functions and responsibilities
identified in this part, including, but not limited to Sec. Sec.
5001.201, 5001.202, 5001.207, and 5001.501.
(2) Written request. A non-regulated lending entity that seeks to
become a lender must submit a written request to the Agency including
the following information:
(i) The request must clearly define the multiple-entity
organizational and control structure with a listing of each entity
under its control, including any Community Development Entity (CDE)
that may request guaranteed loans under Sec. 5001.141. In addition,
the non-regulated lending entity must include each such sub-entity in
their audited financial statements, commercial loan portfolio, and
commercial loan performance statistics;
(ii) Bylaws;
(iii) Audited financial statements for the most recent fiscal year
that evidences the required balance sheet equity and that the lending
entity has available resources to successfully meet its
responsibilities;
(iv) Auditor's most recent management letter and management's
response;
(v) An interim financial statement dated within 90 days of the
written request, if applicable;
(vi) A copy of any license, charter, State statute, or other third-
party evidence of authority to engage in the proposed guaranteed loan
making and servicing activities. If licensing by the State is not
required, an attorney's opinion stating that licensing is not required
and that the lending entity has the legal authority to engage in the
proposed guaranteed loan making and servicing activities must be
submitted;
(vii) The lender's loan classification scale including their loan
classification criteria;
(viii) Information on lending experience, including--
(A) Length of time in the lending business;
(B) Range and volume of lending and servicing activities for the
last five years, including a list of the industries for which it has
provided financing;
(C) Status of its loan portfolio, including a summary of loans in
the portfolio by current loan classification code, a list of any loans
restructured or charged off in the previous five years, and the
calculated delinquency and loss rates as outlined in paragraph
(c)(1)(ii) of this section;
(D) Lending experience of management and loan officers, including
staff organizational chart, including names and titles for senior
staff;
(E) Largest sources of funds for the last five years and source of
funds for the proposed guaranteed loans;
(F) Office location(s) and proposed lending area(s);
(G) An estimate of the number, size, and type of applications the
lending entity will develop over the next six months; and
(H) Proposed Interest rate structure and loan fees, including any
loan origination, loan preparation, and servicing fees.
(ix) Description of programs, financial, and non-financial products
and services.
(x) Its lending policies including underwriting standards, credit
analysis policies and procedures, and its problem credit management
policies and procedures.
(xi) A third-party external loan origination, lending portfolio,
and management review acceptable to the Agency conducted in the
previous two years, or a copy of a credit examination less than two
years old conducted under an approved credit examination criterion such
as CAMELS.
(3) Approval or disapproval. The Agency will notify the non-
regulated
[[Page 42539]]
lending entity whether its request to become a lender is approved or
rejected. If the Agency rejects the request, the Agency will include in
the notification the reason(s) for the rejection.
(4) Renewals. To maintain its status as an approved lender, the
non-regulated lending entity must submit a request to the Agency for
renewal of its approved lender status at least 60 calendar days prior
to the expiration of the existing lender's agreement to be assured of a
timely renewal. The lender must provide in this written request the
information specified in paragraphs (c)(2)(i) and (iii) through (v) of
this section; and
(i) A written update of any change in the persons designated to
process and service Agency guaranteed loans or change in the operating
methods used in the processing and servicing of loans since the
original or last renewal date of lender status.
(ii) A description of how the lender is complying with each of the
required criteria described in (c)(1) of this section and Sec.
5001.501.
(iii) A new executed lender's agreement.
(iv) The Agency may require lenders with limited guaranteed loan
activity over the previous five years, or a lender that has originated
guaranteed loans with servicing issues or a loss to the Agency, to
resubmit all the information required by paragraph (c)(2) of this
section.
(d) Non-regulated lending entities serving tribal trust lands. The
Agency may approve a lending entity serving tribal trust lands that
does not meet the criteria of paragraph (b) or (c) of this section to
become a lender for a five-year period. A non-regulated lending entity
approved to originate and service guaranteed loans for projects located
only on tribal trust lands is restricted to such areas. To make and
service guaranteed loans not on tribal trust lands, the lending entity
must meet the criteria of paragraph (b) or (c) of this section. When
the lending entity is a multi-tiered entity, the Agency will consider
the lending entity in its entirety for approval.
(1) Conditions. To be approved as a lender, a non-regulated lending
entity serving only tribal trust lands must--
(i) Have the legal authority necessary to operate a lending program
to borrowers located on tribal trust lands.
(ii) Meet the requirements of paragraph (c)(1) of this section, and
prove to be a financially sound institution, as determined by the
Agency, on a case by case basis, based on the Agency's risk assessment
of the lending entity's capital, adequate liquidity, management
capabilities, repayment ability, credit underwriting, balance sheet
equity and other financial factors as determined appropriate. On a
case-by-case basis, the Agency may reduce the loan origination
requirements of paragraph (c)(1)(ii) of this section for lenders
serving only projects located on tribal trust lands.
(2) Written request. A non-regulated lending entity serving tribal
trust lands must submit a written request to the Agency that includes
the following information:
(i) Documentation required by paragraph (c)(2) of this section;
(ii) Written certification that the lender intends to only
originate guaranteed loans under the regulation for projects located in
certain (or specified) tribal lands held in trust for tribes and for
tribal members not in such tribal lands but are in their service area;
(iii) Bylaws; and
(iv) Lending experience of management and loan officers, including
staff organizational chart, including names and titles for senior
staff.
(3) Approval or disapproval. The Agency will notify the non-
regulated lending entity servicing tribal trust land whether its
request to become a lender is approved or rejected. If the Agency
rejects the request, the Agency will include in the notification the
reason(s) for the rejection.
(4) Renewals. To maintain its status as an approved lender, the
non-regulated lending entity serving tribal trust land must submit a
request to the Agency for renewal of its approved lender status at
least 60 calendar days prior to the expiration of the existing lender's
agreement to be assured of a timely renewal. The lender must provide in
this written request the information specified in paragraphs (c)(2)(i)
and (iii) through (v) of this section; and
(i) A written update of any change in the persons designated to
process and service Agency guaranteed loans or change in the operating
methods used in the processing and servicing of loans since the
original or last renewal date of lender status.
(ii) A description of how the lender is complying with each of the
required criteria described in (c)(1) of this section and Sec.
5001.501.
(iii) A new executed lender's agreement.
(iv) The Agency may require lenders with limited guaranteed loan
activity over the previous five years, or a lender that has originated
guaranteed loans with servicing issues or a loss to the Agency, to
resubmit all information required by paragraph (c)(2) of this section.
(e) Previously approved lenders. Lenders that have been previously
approved by the Agency under one of the guaranteed loan programs
identified in Sec. 5001.1(b)(1) through (4) of this part cannot
originate new guaranteed loans after the effective date of this rule
unless the lender is approved under the applicable conditions of
paragraphs (a) through (d), as applicable, of this section.
Sec. 5001.131 Lender's agreement.
When approved to participate as a lender under this part, the
Lender must execute a lender's agreement before the Agency will issue a
loan note guarantee. A new lender's agreement must be executed with any
existing lender making new loans on or after October 1, 2020.
Sec. 5001.132 Maintenance of approved lender status.
Continuation of approved lender status under this part is not
automatic. Lenders may lose their approved lender status as described
in paragraph (a) of this section. The Agency may also revoke a lender's
status as an approved lender or debar the approved lender, as described
in paragraph (b) of this section.
(a) Loss of approved lender status. A lender will lose its approved
status if it--
(1) Fails to conform with the provisions of this part or the
applicable guaranteed loan program identified in Sec. 5001.1 of this
part;
(2) Has no outstanding guaranteed loans with the Agency for five
consecutive years;
(3) A regulated lending entity fails to remain in good standing
with its regulator;
(4) A non-regulated lending entity fails to renew its approval
status 5 years from the date the Agency executes the lender's
agreement.
(b) Revocation of approved status and debarment of lender. The
Agency can revoke a lender's status as an approved lender at any time
for cause as specified in the lender's agreement. A decision to revoke
a lender's approved status will be made by the Agency and the lender
will be notified in writing. Cause for revoking lender status includes,
but is not necessarily limited to, the circumstances identified in
paragraphs (b)(1) through (14) of this section.
(1) Guaranteed loans originated by the lender cause substantial
financial loss to the Agency.
(2) Failure to maintain status as an approved lender under the
applicable
[[Page 42540]]
regulations in effect when the lender obtained approved lender status.
For lenders approved under this part, this means maintaining compliance
with the requirements set forth in Sec. 5001.130.
(3) Conviction of the lender or any of its officers for criminal
acts in connection with any loan transaction, whether or not the loan
was guaranteed by the Agency.
(4) Violation of usury laws in connection with any loan transaction
whether or not the loan was guaranteed by the Agency.
(5) Negligent loan origination.
(6) Knowingly submitting false information when requesting a loan
guarantee or basing a loan guarantee request on information known to be
false or which the lender should have known to be false.
(7) Failure to correct any Agency-cited deficiency in loan
documents in a timely manner.
(8) Failure to provide for adequate construction planning and
monitoring in connection with any guaranteed loan to ensure that the
project will be completed with the available funds.
(9) Negligent loan servicing.
(10) Failure to obtain and maintain the required collateral for any
guaranteed loan.
(11) Using guaranteed loan funds for purposes other than those
specifically approved by the Agency in the conditional commitment or
amendment thereof.
(12) Violation of any term of the lender's agreement.
(13) Failure to submit reports required by the Agency in a timely
manner.
(14) Violation of applicable nondiscrimination laws, including, but
not limited to, statutes, regulations, USDA Departmental Regulations,
the USDA Non-Discrimination Statement, and the Equal Credit Opportunity
Act. USDA's Non-Discrimination Statement is located on the Agency's
website, see https://www.usda.gov/non-discrimination-statement. In
addition to revoking the Lender's status, the Agency may debar a Lender
in compliance with 2 CFR part 180.
(c) Servicing of outstanding loans. Any lender who loses its status
as an approved Lender under any of the conditions identified in
paragraph (a) or (b) of this section must reapply under the provisions
of Sec. 5001.130 to be reinstated as an approved lender. A lender who
loses its approved lender status must continue to service any
outstanding guaranteed loans in conformance with the lender's agreement
last in effect and the applicable regulation under which the lender
became an approved lender. In addition, such lenders cannot submit
requests for new loan guarantees.
Sec. Sec. 5001.133-5001.139 [Reserved]
Sec. 5001.140 Cooperative stock/cooperative equity.
Loan guarantees described in paragraphs (a) through (d) of this
section are only available under B&I guaranteed loans.
(a) Cooperative stock purchase program. The Agency may guarantee
loans for the purchase of cooperative stock by individual farmers or
ranchers in a farmer or rancher cooperative established for the purpose
of processing an agricultural commodity. The cooperative may contract
for services to process agricultural commodities or otherwise process
value-added agricultural products during the five-year period beginning
on the operation startup date of the cooperative in order to provide
adequate time for the planning and construction of the processing
facility of the cooperative.
(1) The proceeds from the stock sale may be used to recapitalize,
to develop a new processing facility or product line, or to expand an
existing production facility. Guaranteed loan funds must remain in the
cooperative from which stock was purchased, and the cooperative must
not reinvest those funds into another entity.
(2) The maximum guaranteed loan amount is $600,000 and all
applications will be processed in accordance with Sec. Sec. 5001.301
through 5001.303, 5001.306, 5001.315, and 5001.318 of this part, as
applicable.
(3) The maximum term of the guaranteed loan is seven years when the
proceeds from the stock sale are used by the cooperative to
recapitalize or are used for working capital. The maximum term
allowable for final guaranteed loan maturity is limited to the
justified useful life of the assets the cooperative purchases with the
proceeds of the stock sale not to exceed 40 years or applicable State
statutory limitations, whichever is less.
(4) The lender will, at a minimum, obtain a valid lien on the
stock, an assignment of any patronage refund, and the ability to
transfer the stock to another party, or any other right or ability
necessary to liquidate and dispose of the collateral in the event of a
default by the borrower.
(5) The lender must complete a written credit evaluation of each
stock purchase loan and a complete credit evaluation of the cooperative
prior to making its first stock purchase loan.
(6) The borrower may provide financial information in the manner
that is generally required by commercial agricultural lenders.
(7) A feasibility study of the cooperative is required for startup
cooperatives and may be required by the Agency for existing
cooperatives when the cooperative's operations will be significantly
affected by the proceeds that were generated from the stock sale.
(8) The Agency will conduct an appropriate environmental review on
the processing facility and will not process individual applications
for the purchase of stock until the environmental review on the
cooperative processing facility is completed.
(b) Purchase of transferable stock shares. The Agency may also
guarantee loans for the purchase of transferable stock shares of any
type of existing cooperative, which would primarily involve new or
incoming members. Such stock may provide delivery or some form of
participation rights and may only be traded among cooperative members.
(1) The maximum loan amount is $600,000 and all applications will
be processed in accordance with Sec. Sec. 5001.301 through 5001.303,
5001.306, 5001.315, and 5001.318 of this part, as applicable.
(2) The maximum term of the loan is seven years.
(3) The lender will, at a minimum, obtain a valid lien on the
stock, an assignment of any patronage refund, and the ability to
transfer the stock to another party, or any other right or ability
necessary to liquidate and dispose of the collateral in the event of a
default by the borrower.
(4) The lender must complete a written credit evaluation of each
stock purchase loan and a complete credit evaluation of the cooperative
prior to making its first stock purchase loan.
(c) Cooperative equity security guarantees. The Agency may
guarantee loans for the purchase of preferred stock or similar equity
issued by a cooperative or may guarantee loans to a fund that invests
primarily in cooperatives. In either case, the project must
significantly benefit one or more entities eligible for assistance
under B&I guaranteed loans.
(1) ``Similar equity'' is any special class of equity stock that is
available for purchase by non-members and/or members and lacks voting
and other governance rights.
(2) A fund that invests ``primarily'' in cooperatives is determined
by its percentage share of investments in and loans to cooperatives. A
fund portfolio must have at least 50 percent of its loans and
investments in cooperatives to be
[[Page 42541]]
considered eligible for loan guarantees for the purchase of preferred
stock or similar equity.
(3) The principal amount of the guaranteed loan cannot exceed $10
million.
(4) The maximum term of the guaranteed loan is seven years when the
proceeds are used by the cooperative for working capital and;
(i) In all other cases the maximum term of the guaranteed loan is
equal to the lesser of the following but not exceeding 40 years:
(ii) The justified useful life of the funded project assets,
(iii) The maximum term under any applicable State statute; or
(iv) The specified holding period for redemption as stated by the
stock offering.
(5) All borrowers purchasing preferred stock or similar equity must
provide documentation of the terms of the offering that includes
compliance with State and Federal securities laws and financial
information about the issuer of the preferred stock to both the lender
and the Agency.
(6) Issuer(s) of preferred stock must be a cooperative organization
and must be able to issue preferred stock to the public that, if
required, complies with State and Federal securities laws.
(7) The lender will, at a minimum, obtain a valid lien on the
preferred stock, an assignment of any patronage refund, and the ability
to transfer the stock to another party, or otherwise liquidate and
dispose of the collateral in the event of a default by a borrower. For
the purpose of recovering losses from guaranteed loan defaults, lenders
may take ownership of all equities purchased with such loans, including
additional shares derived from reinvestment of dividends.
(8) Shares of preferred stock that are purchased with guaranteed
loan funds cannot be converted to common or voting stock.
(9) In the absence of adequate provisions for investors' rights to
early redemption of preferred stock or similar equity, a borrower must
request from a cooperative or fund issuing such equities a contingent
waiver of the holding or redemption period in advance of share
purchases. This contingent waiver provides that in the event a default
by a borrower on a B&I guaranteed loan, the borrower waives any
ownership rights in the stock, and the lender and Agency will then have
the right to redeem the stock.
(10) Guaranteed loans for the purchase of preferred stock must be
prepaid in the event a cooperative that issued the stock exercises an
early redemption. If the cooperative enters into bankruptcy, to the
extent the cooperative can redeem the preferred stock, the Borrower is
required to repay the guaranteed loan from the redemption of the stock.
(d) Employee ownership succession. The Agency may guarantee loans
for conversions of businesses to either cooperatives or ESOP within
five years from the date of initial transfer of stock.
(1) The maximum loan amount is $600,000 and all applications will
be processed in accordance with Sec. Sec. 5001.301 through 5001.303,
5001.306, 5001.315, and 5001.318 of this part, as applicable.
(2) The maximum term is 10 years.
(3) The lender must, at a minimum, obtain a valid lien on the
stock, an assignment of any patronage refund, and the ability to
transfer the stock to another party, or otherwise liquidate and dispose
of the collateral in the event of a default by a borrower.
(4) The lender must complete a written credit evaluation of each
stock purchase loan and a complete credit evaluation of the cooperative
or ESOP prior to making its first stock purchase loan.
(5) If a cooperative is organized, each selling owner becomes a
member with special control rights to protect their stake in the
business while a succession plan is implemented. At the completion of
the stock transfer, selling owners may retain their membership in the
cooperative provided that their control rights are the same as all
other members. Any special covenants that selling owners may have held
must be extinguished upon completion of the transfer.
(6) If an ESOP is organized for transferring ownership to
employees, selling owner(s) may not retain ownership in the business
after five years from the date of the initial transfer of stock.
Sec. 5001.141 New markets tax credits.
The New Markets Tax Credit (NMTC) program is administered by the
U.S. Department of the Treasury's (Treasury) Community Development
Financial Institutions (CDFI) Fund with NMTC credits allocated to
Treasury-certified Community Development Entities (CDEs) across the
United States to make Qualified Equity Investments (QEIs) in low-income
communities. NMTC related definitions and terms in this section are
governed by section 45(D) of the Internal Revenue Code (26 U.S.C. 45D),
and applicable Treasury regulations (26 CFR 1.45D-1). A CDE will
generally establish a new subsidiary of a CDE (sub-CDE) for individual
NMTC projects. Lenders and their borrowers with guaranteed loan
Projects that include NMTC investments must comply with the provisions
in this section. To be a lender for a guaranteed loan project that
involves financing under the NMTC provisions, the lending entity must
meet the applicable eligibility criteria in Sec. 5001.130. The Agency
will not waive its servicing rights to a guaranteed loan or be a party
to any forbearance agreement in conjunction with a NMTC project.
(a) Guaranteed Loans Directly to Qualified Active Low-Income
Community Businesses (QALICB). (1) A lender that is CDE or sub-CDE
under the direct control of a regulated lender or an approved non-
regulated lender does not need to separately meet the requirements of
Sec. 5001.130 to make a guaranteed loan directly to a qualified active
low-income community business (QALICB).
(2) The provisions of Sec. 5001.121(c)(2) notwithstanding, a
lender that is a CDE or sub-CDE may have an ownership interest in the
borrower provided that each condition specified in paragraphs (a)(2)(i)
through (iii) of this section is met.
(i) The lender does not have an ownership interest in the borrower
prior to the application.
(ii) The lender does not take a controlling interest in the
borrower.
(iii) The lender does not provide equity or take an ownership
interest in a borrower at a level that would result in the lender
owning 20 percent or more interest in the borrower.
(3) Notwithstanding Sec. 5001.115(f), a lender that is a CDE or
sub-CDE taking an ownership interest in the borrower does not
constitute a conflict of interest. The Agency will mitigate the
potential for a conflict of interest by requiring appropriate loan
covenants establishing, at a minimum, limitations on dividends and
distributions of earnings in the loan agreement between the lender and
borrower. The Agency will also ensure that the lender limits any
waivers of loan covenants and future modifications of loan documents in
compliance with this part.
(4) Guaranteed loans made by a lender directly to a QALICB must
meet all other program and project eligibility requirements as
specified in this part.
(5) For purposes of calculating borrower equity in compliance with
Sec. 5001.105(d)(1), the CDE (or sub-CDE's) amount of the principal
balance of the loan from NMTC investor funds that is subordinated to
the guaranteed loan may be considered as equity.
(b) Guaranteed loans to a NMTC leveraged equity structure. Tax
benefits
[[Page 42542]]
to a NMTC investor are based on the total amount of funds utilized in
the project. The tax benefit calculation includes the sum of the
investor's cash investment plus loan proceeds from a leveraged lender
into a NMTC investor fund entity. The investor fund entity is generally
a new entity established to make a qualified equity investment (QEI)
into one or more CDEs or sub-CDEs to support a qualified low-income
community investment (QLICI) to a QALICB. The investor fund entity,
through its investment, has ownership rights in the sub-CDE that will
be making secured QLICI loans to the QALICB. The provisions of Sec.
5001.127(g) notwithstanding, either a leveraged lender entity lending
to an investor fund entity, or an investor fund entity such as an
investor partnership or investor limited liability corporation, may be
an eligible borrower for a specific NMTC project as specified in
paragraph (b)(1) of this section. For purposes of this section only,
the stated term ``borrower'' in paragraphs (b)(1) through (13) of this
section applies to both a leveraged lender entity or an investor fund
entity as the guaranteed loan borrower in the NMTC project. Paragraphs
(b)(2) through (13) of this section identify modifications to this part
that apply when the eligible borrower is a leveraged lender entity or
investor fund entity in a NMTC project.
(1) To be an eligible borrower using the leveraged equity structure
of a NMTC project each condition identified in paragraphs (b)(1)(i)
through (v) of this section must be met.
(i) The investor fund entity must be established for a single
specific NMTC investment.
(ii) The lender is not an affiliate of the borrower.
(iii) When the borrower is a leveraged lender entity it must relend
one hundred percent of the guaranteed loan funds to an investor fund
entity. In all cases one hundred percent of the guaranteed loan funds
are or will be invested by the investment fund entity in one or more
sub-CDEs that will then be loaned directly to a QALICB through a direct
tracing method, and such guaranteed loan funds are, or will be, used by
the QALICB in accordance with the eligibility requirements in subpart B
of this part. The QALICB's project must be the ultimate use of one
hundred percent of the guaranteed loan funds.
(iv) The QALICB must meet the requirements of an eligible borrower
as found in Sec. 5001.126.
(v) The sub-CDE operating agreement with the QALICB must include a
provision that the guaranteed lender has approval rights with respect
to any substantial loan servicing actions that may be taken by the sub-
CDE regarding the collateral or repayment terms of their QLICI loans to
the QALICB.
(2) The guaranteed loan amount and percentage of guarantee
provisions found in Sec. Sec. 5001.406 and 5001.407 of this part,
respectively, apply to the QALICB and not to the investor fund entity
or leveraged lender entity, who would actually be the borrower as
defined under this part.
(3) For purposes of calculating borrower equity in compliance with
Sec. 5001.105(d)(1), the leveraged lender entity's note from the
investor fund may be considered a tangible asset and when the lien
associated with the sub-CDE's loan is subordinated, the principal
balance of the sub-CDE's loan made to the QALICB from NMTC investor
funds may be considered as equity.
(4) The loan terms found in Sec. 5001.402 of this part apply to
both the borrower and the QALICB. The maturity and related payment
schedule of the lender's guaranteed loan to the borrower must be no
longer than the maturity and related payment schedule of the sub-CDE's
loan to the QALICB. An Agency approved unequal or escalating schedule
of principal and interest payments can be used for a NMTC loan. The
lender may require additional principal repayment by a co-borrower,
such as an owner or principal participant of the QALICB. The provisions
of Sec. 5001.402(b)(3) notwithstanding, the Agency may consider
interest-only payments by a borrower pursuant to an interest-only term
not to exceed seven years on a loan made under an NMTC structure if the
lender requires:
(i) A debt repayment reserve fund or sinking fund in an amount at
least equal to the guaranteed loan's principal amortization that would
have otherwise applied to the loan if equally amortized payments were
collected during the seven year term; and
(ii) Such reserve funds or sinking funds are applied to the
guaranteed loan as an additional payment of principal at the end of
such interest-only term.
(5) Except for the collateral provisions, Sec. 5001.202(b)(4),
Sec. 5001.202(b) of this part applies to both the lender's guaranteed
loan to the borrower and the sub-CDE's loan to the QALICB. The
collateral provisions found in Sec. 5001.202(b)(4) of this part apply
only to the sub-CDE's loan to the QALICB.
(6) The personal, partnership and corporate guarantee provisions of
Sec. 5001.204 of this part apply when the guaranteed loan borrower is
a leveraged lender entity in a NMTC project. Guaranteed loans made
directly to an investor fund entity as the borrower do not require a
personal, partnership, or corporate guarantee from the investor fund
entity's owner, who is the NMTC tax credit investor and considered a
passive investor. The Agency shall obtain the personal, partnership or
corporate guarantee from the QALICB ownership for a guaranteed loan to
an investor fund entity in compliance with Sec. 5001.204, subject to
the eligibility requirements of the NMTC program. The Agency may
require additional personal, partnership or corporate guarantees if
warranted by an Agency evaluation of potential financial risk.
(7) The insurance provisions of Sec. 5001.205(d) of this part
apply only to the QALICB and the sub-CDE's secured loan to the QALICB.
(8) The financial report provisions of Section 5001.504 of this
part apply to both the borrower and the QALICB.
(9) The application requirements found in subpart D to this part,
as applicable, apply to both the borrower and the QALICB, including the
application analysis and evaluation components of Sec. 5001.303. The
Agency also requires submission of the loan terms and documents between
the sub-CDE and QALICB. As part of the application completed by the
lender, the documentation must include comparable industry information
and a summary of the NMTC project's funding path and an explanation of
the relationships between all parties in the NMTC transaction (an
accompanying schematic is encouraged for complicated transactions).
(10) The environmental responsibilities specified in Sec. 5001.207
of this part apply to the NMTC project.
(11) For any application that the Agency assigns a priority score,
when assigning the priority score to a NMTC loan application, the
Agency will score the project based on the entire NMTC structure and
the QALICB's project as the ultimate use of guaranteed loan funds.
(12) The lender is responsible for ensuring that the NMTC project
complies with the planning, performing, development and project
monitoring provisions in Sec. 5001.205 of this part and the lender is
also responsible for ensuring the NMTC project complies with all
applicable Treasury NMTC requirements.
(13) Sections 5001.401 through 5001.408 of this part apply to both
the borrower and the QALICB in a NMTC transaction.
[[Page 42543]]
Sec. Sec. 5001.142-5001.200 [Reserved]
Subpart C--Orgination Provisions
Sec. 5001.201 General origination requirements.
The lender is responsible for originating a guaranteed loan in
accordance with the requirements of this part and in accordance with
its internal origination policies and procedures to the extent they do
not conflict with the requirements of this part. For each application,
the lender must prepare a credit evaluation that is consistent with
Agency standards found in this part. The Agency reserves the right to
review the lender's credit evaluation and request additional
information. Lender approval does not constitute Agency approval.
Sec. 5001.202 Lender's credit evaluation
For each application, the lender must prepare a credit evaluation
that is consistent with Agency standards found in this part.
(a) Lender's evaluation guidelines. The lender must conduct a
credit evaluation using credit documentation procedures and
underwriting processes that are consistent with generally accepted
prudent lending practices for commercial, public and project financing
and also consistent with the lender's own policies, procedures, and
lending practices. The underwriting process must include a review of
each loan for which a loan guarantee is being sought under this part.
Applications involving affiliated entities must include a global credit
evaluation and if applicable a global historical and projected debt
service coverage analysis. Applications involving guarantor(s) must
also include a global debt service coverage analysis of the
guarantor(s) including the cash flow of the guarantor(s). In addition,
the lender must review all applicable contracts, management agreements,
and leases to determine they will not adversely affect either the
borrower's repayment ability or the value of the collateral securing
the guaranteed loan. The lender's evaluation must address any financial
or other credit weaknesses of the borrower and project and discuss risk
mitigation requirements imposed by the lender.
(b) Credit factors. In performing its credit evaluation, the lender
must analyze all credit factors associated with each proposed
guaranteed loan and apply its professional judgment to determine that
the credit factors and guaranteed loan terms and conditions, considered
in combination, ensure guaranteed loan repayment. Credit factors to be
analyzed include, but are not necessarily limited to, those areas
identified and defined in paragraphs (b)(1) through (5) of this
section.
(1) Character. Those qualities that generally impel the borrower to
meet its obligations as demonstrated by its credit history, including
project and borrower debt structure and debt repayment ability. When
applicable, an evaluation may include the character of persons with
management control or a 20 percent or more ownership interest in the
borrower. When the borrower's credit history or character is negative,
the lender will provide satisfactory explanations to indicate that any
problems are unlikely to recur. The ownership or membership structure
of the project and borrower (including membership, sponsors, other
equity investors), and the historical performance and experience of
ownership and management specific to the project and industry. The
historical performance and experience of any entities providing
management or administrative services pursuant to contract should also
be evaluated. For CF projects the commitment of the rural community or
rural area to be served by the project should be evaluated. Borrower's
management, and its for-profit, non-profit or governing board, as
applicable, will be evaluated to ensure key management personnel are
adequately trained and experienced.
(2) Capacity. A borrower's ability to produce sufficient cash to
repay the guaranteed loan as agreed, including the feasibility and
likelihood of the project and borrower to produce sufficient revenues
to service the project's debt obligations over the life of the
guaranteed loan and, when applicable, result in sufficient returns to
investors to ensure successful repayment of the guaranteed loan. The
lender shall address any economic safeguards of the project, including
capital expenditure budgeting or reserve funds and other contingency
reserve funds such as maintenance reserve funds or debt service reserve
funds, intended to protect and safeguard the Agency and lender in the
event of default. The lender must make all efforts to:
(i) Ensure that the borrower has adequate working capital,
operating capital and reserves for capital expenditures, debt service,
and maintenance as applicable; and
(ii) Structure or restructure debt so the borrower has adequate
debt coverage, documenting as applicable the necessity of any debt
refinancing. The evaluation will be supported by a cash flow analysis.
(3) Capital. The borrower must have the resources to adequately
capitalize the project and demonstrate the ability to generate and
maintain sufficient cash flow for its operations. The extent to which
project costs are funded by the borrower in relation to project costs
funded by the guaranteed loan or other Federal and non-Federal
governmental assistance such as grants, tax credits, or other loans
must be analyzed.
(4) Collateral. This criterion refers to the security pledged for
the guaranteed loan. The lender is responsible for obtaining and
maintaining proper and adequate collateral for the guaranteed loan. All
collateral must secure the entire guaranteed loan. The lender is
prohibited from taking separate collateral for the guaranteed and
unguaranteed portions of the guaranteed loan or requiring compensating
balances or certificates of deposit as a means of eliminating the
lender's exposure on the unguaranteed portion of the guaranteed loan.
Collateral can include, but is not limited to: General obligation
bonds; revenue bonds; pledges of taxes or assessments; assignments of
facility revenue and byproduct revenue, as well as other assets such as
land, easements, rights-of-way, water rights, buildings, machinery,
equipment, inventory; accounts receivable, other accounts, contracts,
cash, assignments of leases and leasehold interests. Intangible assets
may serve as collateral, provided they do not serve as primary
collateral. For purposes of determining compliance with this
requirement, leasehold improvements such as buildings and other
structures on leased property are considered tangible assets and can
serve as primary collateral. It is the lender's responsibility to
obtain, document, file, record and take all actions necessary to
properly perfect and maintain adequate collateral to protect the
interests of the lender and the Agency.
(i) The lender must determine the market value of collateral as
established by an appraisal in accordance with Sec. 5001.203.
(ii) The lender should discount collateral consistent with sound
loan-to-discounted value practices which must be adequate to secure the
guaranteed loan in accordance with this section. To assess collateral
adequacy and appropriate levels of discounting, the lender should give
consideration to the type, quality, location, marketability, and
alternative uses of the collateral and the basis for the valuation of
the collateral, e.g. collateral valued on a cost or replacement
valuation or market or comparable sales valuation may require variance
of discount factors. The lender must provide satisfactory justification
of the discounts being used. Only under exceptional circumstances for
WWD
[[Page 42544]]
projects with a loan guarantee under the provisions of Sec.
5001.126(c) will the Agency guarantee a loan where the guaranteed loan
amount is greater than the market value of the collateral.
(5) Conditions. This factor refers to the general business
environment, including the regulatory environment affecting the
business or industry, and status of the Borrower's industry.
Consideration will be given to items listed below and, when applicable,
the lender should submit supporting documentation (e.g., feasibility
study, market study, preliminary architectural or engineering reports,
etc.):
(i) Availability and depth of resource/feedstock market, strength
and duration of purchase agreements and availability of substitutes;
(ii) Analysis of current and future market potential and off-take
agreements, competition, type of project (service, product, or
commodity based),
(iii) Energy infrastructure, availability and dependability,
transportation and other infrastructure, and environmental
considerations;
(iv) Technical feasibility including demonstrated performance of
the technology and integrated processing equipment and systems,
developer system performance guarantees, or technology insurance;
(v) Complexity of construction and completion, terms of
construction contracts, experience and financial strength of the
construction contractor or engineering, procurement, and construction
(EPC) contractor;
(vi) Contracts and intellectual property rights, licenses, permits,
and state and local regulations;
(vii) Creditworthiness of any counterparties, as applicable;
(viii) Industry-related public policy issues; and
(ix) Other criteria that the lender or Agency deems relevant to the
project.
(6) Content. The credit evaluation must be sufficiently detailed to
describe the proposed loan, business and project scenario and document
that the proposed loan is sound. The credit evaluation must include:
(i) A written evaluation of each credit factor listed in paragraphs
(b)(1) through (5) of this section and any additional factors as
appropriate; and
(ii) A written evaluation of the feasibility study, business plan,
technical report, and engineering and architectural reports, as
applicable; and
(iii) Spreadsheets and analysis of the financial statements
provided in accordance with Sec. 5001.303, with appropriate ratios and
comparisons with industry standards (such as Dun & Bradstreet or the
Risk Management Association). The spreadsheets should enable a reviewer
to easily scan the data, spot trends, and make comparisons.
(iv) Financial projections deviating from historical financial
performance must be substantiated and documented.
(v) Projected operational cash flow analysis on a quarterly basis
for borrowers with seasonal cyclical cash flow.
(vi) Operational cash flow analysis on a quarterly basis from the
current financial statements through start-up or occupancy for projects
involving construction when lenders are requesting the loan note
guarantee prior to completion of construction.
Sec. 5001.203 Appraisals.
Appraisals of collateral are required as set forth in this section.
The lender is responsible for ensuring that appraisal values adequately
reflect the actual value of the collateral based on an arm's length
transaction. Completed appraisals should be submitted when the
application is filed. If the appraisal has not been completed when the
application is filed, the lender must submit an estimated appraised
value. Prior to the issuance of the loan note guarantee, the estimated
value must be supported with an appraisal acceptable to the agency.
(a) Newly-acquired chattel. A bill of sale may be submitted to
support the value of newly-acquired chattel.
(b) Existing chattel. The lender must obtain appraisal(s) for
existing chattel collateral when its value exceeds $250,000.
(c) Real estate. The lender must obtain appraisals for real estate
collateral when the value of the collateral exceeds $500,000 or the
current limitation established under the Financial Institutions Reform,
Recovery, and Enforcement Act (FIRREA) Public Law 101-73, 103 Stat. 183
(1989). Real estate and chattels with a value below these thresholds
must be evaluated in accordance with the lender's primary regulator's
policies relating to appraisals and evaluations or, if the lender is
not regulated, in accordance with normal banking practices and
generally accepted methods of determining value.
(1) For construction projects, the lender must:
(i) Obtain the ``As Is'' market value and the ``prospective''
market value as of the date of construction completion to determine the
value of the real estate property, or
(ii) Obtain an income-based appraisal as of the date of completion
to determine the value of revenues to be generated by the real estate.
(d) Appraisal standards. (1) Each real estate appraisal must be
conducted by an independent qualified appraiser in accordance with the
USPAP or successor standards. All real estate appraisals must meet the
requirements contained in the FIRREA, and the appropriate guidelines
contained in Standards 1 and 2 of the USPAP and be performed by a State
Certified General Appraiser licensed in the state in which the real
estate is located.
(2) Chattel appraisals must be conducted by an independent
qualified appraiser and must be based on industry recognized standards
and reflect the age, condition, and remaining useful life of the
equipment.
(e) Interagency appraisal and evaluations guidelines.
Notwithstanding any exemption that may exist for transactions
guaranteed by a Federal Government agency, all appraisals obtained by
the lender under this part must conform to the interagency appraisal
and evaluations guidelines established by the lender's primary Federal
or State regulator, if applicable.
(f) Environmental considerations. When the Agency will take a lien
on real property, the real estate appraisals must include consideration
of the potential effects from a release of hazardous substances or
petroleum products or other environmental hazards on the market value
of the collateral, as determined in accordance with the appropriate
ASTM International Real Estate Assessment and Management environmental
standards.
(g) Appraisal review report. The lender must submit its complete
technical review of the appraisal in an appraisal review report
prepared in compliance with USPAP Standards 3 and 4 to the Agency
before guaranteed loan closing.
(1) Appraisals must not be more than one year old. However, the
Agency may request a more recent appraisal in order to reflect more
current market conditions.
(2) The lender must provide documentation that, in addition to the
other requirements of this section pertaining to appraisers, the
appraiser has the necessary experience and competency to appraise
collateral.
(h) Appraisal fees. Unless otherwise stated in this part, appraisal
fees or any other associated costs will not be paid by the Agency.
Sec. 5001.204 Personal, partnership, and corporate guarantees.
The provisions of this section do not apply to passive investors.
[[Page 42545]]
(a) Except as provided in paragraph (c) of this section, Agency-
approved, unsecured personal, partnership, and corporate guarantees for
the full term of the guaranteed loan and at least equal to the
guarantor's percent interest or membership in the borrower times the
guaranteed loan amount are required from any person or entity owning a
20-percent or greater interest or membership in the borrower. In the
event a portion of the borrower's ownership interest stock is sold or
transferred, the Agency reserves the right to require personal or
corporate guarantees from the new owners of a 20-percent or more
interest in the borrower.
(b) When warranted by an Agency assessment of potential financial
risk to the Government in accordance with the Federal Credit Reform Act
of 1990 (FCRA), the Agency may require the following:
(1) Guarantees to be secured;
(2) Guarantees from any person or entity owning less than a 20-
percent Interest or membership in the borrower; and
(3) Guarantees from persons whose ownership Interest in the
borrower is held indirectly through intermediate or affiliated
entities.
(c) Exceptions to the requirement for personal, partnership or
corporate guarantees may be requested by the lender. The lender must
document, to the Agency's satisfaction, that collateral, equity, cash
flow, and profitability indicate an above-average ability of the
borrower to repay the loan. The Agency will evaluate these requests on
a case-by-case basis.
(d) Each guarantor must execute an Agency-approved guarantee form
in addition to any guarantee form required by the lender.
(e) Any amounts paid by the Agency pursuant to a claim by a
guaranteed program lender will constitute a Federal debt owed to the
Agency by a guarantor of the loan, to the extent of the amount of the
guarantor's guarantee.
Sec. 5001.205 General project monitoring requirements.
In complying with the requirements of this section, the lender may
rely on written materials and other reports provided by an independent
engineer and other qualified consultants.
(a) Design requirements. The lender must ensure that all facilities
constructed with guaranteed loan funds are:
(1) Designed using accepted architectural, engineering, and design
practices, taking into consideration any Agency comments when the
facility is being designed;
(2) Designed in conformance to applicable Federal, Tribal, State,
and local codes and requirements; and
(3) Constructed to support operations at the level and quality
contemplated by the borrower using accepted architectural and
engineering practices.
(b) Rights-of-ways, easements, and property rights. The lender is
responsible for ensuring that the borrower has:
(1) Obtained valid, continuous, and adequate rights-of-way and
easements needed for the construction, operation, and maintenance of a
project; and
(2) Obtained and recorded such releases, consents, or
subordinations to such property rights from holders of outstanding
liens or other instruments as may be necessary for the construction,
operation, and maintenance of the project and to provide the required
security.
(c) Permits, agreements, and licenses. It is the lender's
responsibility to ensure the borrower obtains all permits, agreements,
and licenses that are applicable to the project.
(d) Insurance. It is the lender's responsibility to ensure the
borrower obtains and maintains borrower and project insurance in
substance and amount similar to that ordinarily required by lenders in
the industry.
(e) Construction monitoring requirements. The lender, or its
designated agent, will monitor the progress of construction of the
project and undertake the reviews and inspections necessary to ensure
that construction conforms to applicable Federal, Tribal, State, and
local code requirements and that construction proceeds in accordance
with the plans, specifications, and contract documents.
(1) Construction inspections. The lender must notify the Agency of
any scheduled field inspections during construction. The Agency may
attend any field inspections the lender may conduct. Any Agency
inspection, including those with the lender, are for the benefit of the
Agency only (and not for the benefit of other parties in interest) and
do not relieve any parties of interest of their responsibilities to
conduct necessary inspections.
(i) On a case-by-case basis in the event that the Agency determines
that there is additional risk to the government, the Agency may require
the use of a qualified, independent inspector to inspect construction
to ensure the project is being adequately built to meet the borrower's
requirements of the borrower's approved project and comply with all
applicable codes and legal requirements.
(2) Issuance of loan note guarantee prior to completion of the
project. Except for projects utilizing non-proven technologies, the
lender may request that the loan note guarantee be issued prior to
construction or completion of a project. If the lender chooses to close
the construction loan prior to completion of the project or project
acquisition, the loan can only be sold on the secondary market after
all funds have been disbursed for eligible project costs which have
previously been incurred by the borrower. The lender's request will be
considered by the Agency, who may require credit risk mitigation. An
additional fee for issuance of the loan note guarantee prior to
completion of the project will be assessed in accordance with Sec.
5001.454(c) in subpart E. The lender must verify and include evidence
of the following in its request:
(i) The promissory note specifying the full term of the note and
containing the terms and conditions of each draw period;
(ii) The borrower and lender have entered into a contract with an
independent disbursement and monitoring firm with a construction
monitoring plan acceptable to and approved by the Agency;
(iii) The borrower and lender have agreed to a detailed timetable
for the project with a corresponding budget of costs setting forth the
parties responsible for payment. The timetable and budget will be
confirmed as adequate for the planned development by a qualified
independent consultant (e.g., the project architect or engineer) with
demonstrated experience relating to the project's industry.
(iv) The borrower has entered into a firm, fixed-price construction
contract with an independent general contractor with costs outlined in
detail and terms specifying change order approvals, the agreed
retainage percentage, and the disbursement schedule;
(v) Evidence the lender has properly vetted the financial
feasibility and past performance of the contractor to show they are
able to complete the project or that the lender has mitigated risk in
the event the project is never completed, such as requiring a 100-
percent performance/payment bond on the borrower's contractor to be
maintained until the contractor is released from its obligation. The
bonding agent must be listed on Treasury Circular 570;
(vi) Evidence, which the Agency at its sole discretion determines
is satisfactory, that the lender has completed the due diligence
necessary to confirm that the contractor is able to complete the
project based on
[[Page 42546]]
information including but not limited to the financial statements and
past performance of the contractor;
(vii) When applicable, the borrower has entered into a contract
with an independent technology development firm guaranteeing the
following: Completion of the project with the necessary technology to
successfully run the project and system performance for projects that
utilize integrated processing equipment and systems, such as
biorefineries, renewable energy systems, and chemical manufacturing
plants. The credit underwriting of the independent technology
development firm must be satisfactory to and approved by the Agency;
and;
(viii) Evidence, in form and substance satisfactory to the Agency,
that there is sufficient contingency funding in place to handle
unforeseen cost overruns without seeking additional guaranteed
assistance.
(f) Reporting during construction. Regardless of when the loan note
guarantee is issued, all lenders must report any problems in project
development to the Agency within 15 calendar days of identifying the
problem. If the loan note guarantee has been issued prior to
construction or completion of the project, the lender must provide
monthly construction reports that contain:
(1) Certifications for each draw request as follows:
(i) Certification by the independent engineer or qualified
consultant to the Lender that the work referred to in the draw has been
successfully completed; and
(ii) Certification by the borrower and independent engineer or
qualified consultant that the guaranteed loan funds of the prior draw
have been applied to eligible project costs in accordance with the draw
request and that the contractors have delivered mechanics lien waivers
in connection with such draw;
(2) List of invoices;
(3) Details regarding the borrower's equity, other funds, and
guaranteed loan funds disbursed to date;
(4) Status of construction and inspection reports;
(5) Inspection reports; and
(6) Concerns, potential problems, cost overruns, etc.
(g) Use of guaranteed loan funds. The lender must ensure that:
(1) All borrower funds are utilized prior to guaranteed loan funds;
(2) Guaranteed loan funds are only used for eligible project costs
in accordance with the purposes approved by the Agency in the
conditional commitment and in accordance with the plans,
specifications, and contract documents; and
(3) The project will be completed within the approved budget.
(h) Project completion. Once construction of the project is
completed, the lender must obtain and have on file all mechanics lien
waivers or releases from all contractors and materialmen. The lender
will provide to the Agency:
(1) A copy of the notice of completion or similar document issued
by the relevant jurisdiction;
(2) Certification that all funds were used for authorized purposes;
and
(3) A written certification that the project will be used for its
intended purpose and will meet the borrower's needs and guaranteed loan
purposes in accordance with the application approved by the Agency.
(4) RES or EEI projects and projects that utilize integrated
processing systems and equipment, such as biorefineries, renewable
energy systems, and chemical manufacturing facilities, unless utilizing
the provisions of paragraph (e)(2) of this section, must be
constructed, installed, and operated as described in the technical
report or on the vendor certification prior to disbursement of
guaranteed loan funds. For RES, the system must be operating at the
steady state operating level described in the technical report or on
the vendor certification for a period of not less than 30 calendar
days, unless this requirement is modified by the Agency, prior to
disbursement of funds.
Sec. 5001.206 Compliance with USDA Departmental Regulations,
Policies, and other Federal laws.
(a) Departmental regulations. All projects receiving a loan
guarantee under this part are subject to the provisions of USDA's
Departmental Regulations, as applicable.
(b) Other Federal laws. Lenders and borrowers must comply with
other applicable Federal laws including, but not limited to, Equal
Employment Opportunities, Americans with Disabilities Act, Equal Credit
Opportunity Act, and the Fair Housing Act.
Sec. 5001.207 Environmental responsibilities.
Actions taken under this part must comply with 7 CFR part 1970. The
Agency is responsible for ensuring that the requirements of the
National Environmental Policy Act of 1969 (under 40 CFR part 1500) and
related compliance actions, such as Section 106 of the National
Historic Preservation Act (under 36 CFR part 800) and section 7 of the
Endangered Species Act, are met. The Agency will complete the
appropriate level of environmental review in accordance with 7 CFR part
1970, ``Environmental Policies and Procedures.''
(a) Borrower and lender responsibilities. Both the borrower and
lender must take into consideration the potential environmental impacts
of the project at the earliest planning stages. The Agency recommends
that the lender contact the Agency to determine environmental
requirements as soon as practicable after deciding to apply for a
guarantee under this part.
(1) Lender. The lender is responsible for becoming familiar and
ensuring compliance with Federal environmental requirements. The lender
must alert the Agency to any environmental issues related to a project
or items that may require extensive environmental review. Proposals
that minimize the potential of any project to adversely impact the
environment must be developed and provided upon request by the Agency.
(2) The lender must ensure that the borrower has--
(i) Provided the necessary environmental information to enable the
Agency to undertake its environmental review process in accordance with
7 CFR part 1970, including the provision of all required Federal,
State, and local permits;
(ii) Not taken any actions or incurred any obligations with respect
to the project that would either limit the range of alternatives to be
considered during the Agency's environmental review process or which
would have an adverse impact on the environment, such as the initiation
of construction. Taking any such actions or incurring any such
obligations could result in project ineligibility; and
(iii) Complied with any environmental mitigation measures required
by the Agency.
(b) Environmental reviews. The Agency must complete all required
environmental reviews, identifying and addressing, as appropriate,
disproportionately high and adverse human health or environmental
effects on minority populations and low-income populations, in
accordance with 7 CFR part 1970.
(1) The Agency may schedule a site visit if the Agency determines
one is necessary in order to determine the scope of the environmental
review.
(2) The Lender must assist in the collection of additional data
when the Agency needs such data to complete its environmental review of
the project and mitigation of environmental issues.
[[Page 42547]]
Sec. 5001.208 Conflicts of interest.
The lender must report all conflicts of interests, in writing, to
the Agency.
Sec. Sec. 5001.209-5001.300 [Reserved]
Subpart D--Guarantee Application Provisions
Sec. 5001.301 Beginning the application process.
(a) The lender must file applications and related documents through
the Agency online application system located at https://www.rd.usda.gov/onerdguaranteed.
(b) The lender may complete either a request for preliminary
eligibility review in accordance with Sec. 5001.302 or a full
application in accordance with Sec. Sec. 5001.303 through 5001.307, as
applicable, to begin the process for obtaining a guaranteed loan. The
Agency encourages, but does not require, lenders to file requests for
preliminary eligibility reviews in order to obtain Agency comments
before submitting a full Application.
Sec. 5001.302 Preliminary eligibility review.
(a) Contents. Except as otherwise indicated, each request for a
preliminary eligibility review must contain the material identified in
paragraphs (a)(1) through (3) of this section. This information may be
submitted in a narrative format or utilizing the lender's preliminary
lender's analysis or preliminary credit memo.
(1) Regardless of format, the lenders must provide the following
information:
(i) Name of the proposed borrower and co-borrower(s) as applicable,
organization type, address, contact person, email address, and
telephone number;
(ii) Name of the proposed lender, address, telephone number,
contact person, email address;
(iii) Amount of the guaranteed loan request; and if known, the
percentage of guarantee requested; the proposed rates and terms of the
guaranteed loan; and the source(s) of other funding;
(iv) If known, a description of collateral to be offered with
estimated value(s), identity of guarantors, and the amount and source
of equity, other capital, and matching funds to be contributed to the
project; and
(v) A brief description of the project, its location, products or
services provided, service area, and, as applicable, availability of
raw materials and supplies.
(2) Sufficient information and documentation to enable the Agency
to assess borrower, lender, and project eligibility, including
summaries or spreadsheets of financial statements or audits,
relationships and identity of any affiliates; and copies of
organizational documents, organizational charts, and existing debt
instruments.
(3) For REAP projects:
(i) Borrower information as outlined in Sec. 5001.307(a) and (b),
and project information as outlined in Sec. 5001.307(c).
(ii) For REAP RES projects where a residence is located at or is
closely associated with and shares an energy metering devise with a
rural small business or agricultural operation, demonstration that 50
percent or greater of the energy to be generated by the RES will
benefit the rural small business or agricultural operation.
(b) Assessment. Based on the information submitted for the
preliminary eligibility review, the Agency will make an informal
assessment of the types of guarantee funding applicable to the request,
and the eligibility of the borrower, project, and lender. The Agency
will provide written informal comments. The assessment may change based
on subsequently submitted information, is solely advisory in nature,
does not obligate the Agency to approve a guarantee request, and is not
considered a favorable or adverse decision by the Agency.
Sec. 5001.303 Applications for loan guarantee.
The Agency will accept applications on a continuous basis. For each
loan guarantee request, the lender must submit to the Agency a complete
application that is in conformance with this section, and Sec. Sec.
5001.304 through 5001.307, as applicable.
(a) Complete applications. Lenders must submit complete
applications in order to be considered for loan guarantees. Lenders are
encouraged to submit a complete application in a single package;
however, the Agency may accept the environmental information required
by the Agency and initiate and complete its environmental reviews in
advance of receiving a complete application. If an application is
incomplete, the Agency will notify the lender in writing of the items
necessary to address the incomplete application. Upon receipt of a
complete application, the Agency will complete its evaluation.
(b) Content. Lenders must provide an analysis of the scope of the
project in relation to the borrower's overall operations. The
application and lender's analysis should be supported by adequate
documentation as applicable to the project and as listed in paragraph
(c) of this section. The Agency reserves the right to request
additional documentation to support the funding request. All complete
applications must contain at a minimum:
(1) Agency-approved application form or system that includes all
items noted in this section;
(2) Credit evaluation (conforming to Sec. 5001.202).
(3) Environmental information required by the Agency to conduct its
environmental reviews (as specified in Sec. 5001.207(a)(2)(i)).
(4) Required financial statements including:
(i) Current Agency-acceptable balance sheet and year-to-date income
statements of the borrower, and any guarantor(s) dated within 90 days
of submission of the complete application;
(ii) Agency-acceptable historical balance sheet, income statements,
and cash flow statements of the borrower, and any guarantor(s) for the
lesser of the last three fiscal years or all years of operation; and
(iii) Projected balance sheets, income statements, and cash flow
statements or a financial model starting from the current financial
statements through a minimum of two years of the project performing at
full operational capacity or stable operations. Based on the type of
project or at the discretion of the Agency, financial projections or
models may be required from current financial statements up to the end
of the term of the guaranteed loan. Financial projections must be
supported by a list of assumptions showing the basis for the
projections. Projected financial statements must include a pro forma
balance sheet projected for guaranteed loan closing.
(iv) The Agency may request additional financial statements,
financial models, cash flow information, updated financial statements,
and other related financial information to determine the financial
feasibility of a project and evaluate the credit underwriting of
borrower, its affiliates, and any guarantors.
(5) For all applications of $600,000 or greater, a draft loan
agreement for the guaranteed loan that addresses the following:
(i) Repayment term and amortization provisions of the guaranteed
loan;
(ii) Description of real property collateral, list of other
collateral and identification of the lender's lien priority in the
collateral;
(iii) A list of persons and entities guaranteeing payment of the
guaranteed loan and their percentage of guarantee;
(iv) Type and frequency of borrower and guarantor financial
statements to be required for the duration of the
[[Page 42548]]
guaranteed loan (guarantor statements must be updated at least
annually);
(v) Prohibition against borrower assuming liabilities or
obligations of others;
(vi) Limitations on borrower dividend payments and compensation of
officers, owners and members of borrower;
(vii) Limitations on the purchase and sale of equipment and other
fixed assets;
(viii) Restrictions concerning mergers, consolidations, or other
circumstances including significant management changes and a limitation
on selling the business, project, or guarantee loan collateral without
the concurrence of the lender;
(ix) Maximum debt-to-net worth ratio, when required by the lender
or by this part;
(x) Minimum debt service coverage ratio, when required by the
lender or by this part;
(xi) A reserved section for any requirements imposed by the Agency
in its conditional commitment;
(xii) A reserved section for any Agency environmental requirements;
and
(xiii) A provision for the lender and the Agency to have reasonable
access to the project and its performance information during the term
of the guaranteed loan including the periodic inspection of the project
by a representative of the lender or the Agency.
(6) Identify whether or not the borrower has a known relationship
or association with an Agency employee. If there is a known
relationship, identify each Agency employee with whom the borrower has
a known relationship.
(7) At the time of the loan application, the lender must submit its
loan classification and credit risk rating classification scale.
(c) Provisional content. The following items may also be required
based on the type of project being financed or if deficiencies exist in
the credit evaluation and more information is needed to adequately
determine risk:
(1) Appraisals in accordance with Sec. 5001.203.
(2) Current credit reports or the equivalent on the borrower, any
payment guarantors and any person or entity owning greater than a 20
percent or more interest in the borrower or controls the borrower,
except for passive investors and those corporations listed on a major
stock exchange. A credit report or its equivalent are not required for
elected and appointed officials when the borrower is a public body, or
Indian Tribe, or for members of a non-profit organization. Credit
reports must be submitted to the Agency for all applications for
guaranteed loans in the amount of $200,000 or more. For lenders that
are submitting smaller requests, the lender must keep the credit report
on file with the lender's application.
(3) Feasibility study: If the Agency is unable to determine a basis
for successful repayment of a guaranteed loan based on the
documentation and analysis of the five feasibility study components
provided in the lender's analysis, borrower's business plan, or other
project information, or if the proposed project will have significant
impacts on existing operations, the Agency may require an independent
feasibility study. The elements of an acceptable feasibility study may
vary by project scope and should be prepared by a qualified,
independent third party using applicable elements of the project,
including but not limited to those outlined in appendix A to subpart D
of this part.
(4) Intergovernmental consultation comments in accordance with 2
CFR part 415, subpart C, or successor regulation, unless exemptions
have been granted by the State's single point of contact.
(5) Engineering documentation.
(6) Architectural reports.
(7) Energy audits or energy assessments in accordance with Sec.
5001.107.
(8) Energy efficient equipment and systems data in accordance with
Sec. 5001.108.
(9) Business plan: Unless the information is contained in the
feasibility study or in the credit evaluation, a business plan should
be submitted to show how the project will operate and remain viable.
This requirement may be omitted when guaranteed loan funds are used
exclusively for debt refinancing.
(10) If the application is for five or more residential units,
including nursing homes and assisted-living centers, an Affirmative
Fair Housing Marketing Plan that is in conformance with 7 CFR
1901.203(c)(3).
(11) If the application is for financing of health care facilities,
a certificate of need, if required by Federal or State law.
(12) Department of Labor form as noted in Sec. 5001.306(a)(1).
(13) Pro-forma balance sheet for closing as noted in Sec.
5001.306(a)(2).
(14) SEC Form 10-K as noted in Sec. 5001.306(a)(4).
(15) Technical reports in accordance with Sec. 5001.307(e).
(16) Certification regarding credit elsewhere in accordance with
Sec. 5001.126(b)(3) and (c).
(d) Application modification. Once a complete application is
accepted by the Agency and prior to Agency award of a loan note
guarantee, any modification to the application will be treated as a new
Application and the Agency will process the information accordingly.
The submission date of record for a modified application is the date
the Agency receives the modified application information.
Sec. 5001.304 Specific application requirements for CF projects.
In addition to the requirements specified in Sec. 5001.303 as
applicable, a lender seeking a loan guarantee for a CF project must
submit a financial feasibility report prepared by a qualified firm or
individual acceptable to the Agency. All projects financed under this
section must meet the financial feasibility requirements of this
section and must be based on projected taxes, assessments, revenues,
fees, or other sources of revenues in an amount sufficient to provide
for project operation and maintenance, debt payments, and compliance
with lender reserve requirements, when applicable. Other sources of
revenue or existence of payment guarantors are particularly important
in considering the feasibility of eligible recreation projects. The
financial feasibility report must take into consideration any interest
rate adjustment that may be instituted under the terms of the
promissory note. Financial projections for projects that are assisted
living facilities, skilled nursing facilities, or similar types of
eligible residential facilities must be based on no more than 90
percent occupancy. Utility projects dependent on user fees for debt
repayment shall base their income and expense forecast on user
estimates supported by either a state statute or local ordinance
requiring mandatory hookup or signed and enforceable user agreements.
If the primary use of the essential community facility is by a business
and the success or failure of the facility is dependent on that
business, then the economic viability of that business must also be
assessed. For projects that include the purchase and installation of
RES that meet the eligibility requirements of Sec. 5001.103(a)(8), a
technical report on the RES as outlined in Sec. 5001.307(e)(1) and
(2), as applicable, will be included with the applicable financial
feasibility report. The type of financial feasibility report required
will depend upon the size of the guaranteed loan, the collateral o
securing the guaranteed loan, and the financial history of the
borrower. The two types of financial feasibility report and when they
are
[[Page 42549]]
required are described in paragraphs (a) and (b) of this section.
(a) Financial feasibility analysis. The financial feasibility
analysis will be prepared by a qualified firm or individual who may be
the lender. Financial feasibility analysis requirements are outlined in
appendix B to subpart D of this part. The lender's credit evaluation
may serve as the financial feasibility analysis provided it includes
the items outlined in appendix B to subpart D of this part. A financial
feasibility analysis will be required if any of the following
circumstances exist:
(1) Guaranteed loans of $5 million or less;
(2) Guaranteed loans secured by a general obligation bond, or other
tax supported income sufficient to pay the debt service for the life of
the loan; or
(3) Borrowers with audited financial statements, if the last three
years indicate the ability to pay all existing and new debt service.
(b) Financial feasibility study with examination opinion. The
report must be prepared in accordance with the standards of attestation
of the American Institute of Certified Public Accountants, and the
preparer must have the requisite professional liability insurance in
place. A financial feasibility study with examination opinion will be
required for all guaranteed loans that do not meet the requirements for
a financial feasibility analysis outlined in paragraph (a) of this
section. The financial feasibility study with examination opinion will
typically include the items outlined in appendix B to subpart D of this
part.
Sec. 5001.305 Specific application requirements for WWD projects.
In addition to the requirements specified in Sec. 5001.303, a
lender seeking a loan guarantee for a WWD project must submit the
documents specified in paragraphs (a) through (c) of this section.
(a) Engineering documentation. (1) Engineering documentation must
meet the level of detail the lender would typically require for a
standard commercial loan, and include, at a minimum, a description of
the proposed project, a cost estimate, the number of residential and
non-residential connections, and the population served. The lender may
request assistance to clarify the Agency's requirements and
regulations; however, the Agency does not provide technical oversight
or recommendations as to the technical feasibility of the project.
(2) The lender must ensure that the project is designed utilizing
accepted architectural and engineering practices and conforms to
applicable Federal requirements (e.g. the seismic requirements of
Executive Order 12699 (55 FR 835, 3 CFR, 1990 Comp., p. 269), the
debarment requirements of 2 CFR part 417, American Iron and Steel
(Section 746 of Title VII of the Consolidated Appropriations Act of
2017), and the Copeland Anti-Kickback Act (18 U.S.C. 874)); State,
local and Tribal codes and requirements; and facility plans or plans
and specifications reviewed and approved by the applicable State, local
and/or Tribal regulatory agency. The lender must also ensure that the
planned project will be completed within the available funds and, once
completed, will be suitable for the borrower's needs. Upon completion
of the project, the lender must certify that all applicable Federal
requirements were met.
(b) Feasibility considerations. All projects financed under this
part must be based on projected taxes, assessments, revenues, fees, or
other sources of revenues in an amount sufficient to provide for
project operation and maintenance, any reserves required by the lender,
and debt payment. The lender's financial credit analysis must take into
consideration any interest rate adjustment that may be instituted under
the terms of the loan note guarantee.
(c) Credit analysis requirements. In addition to the requirements
of Sec. 5001.202, if the majority user of the system is a business and
the financial success of the system is dependent on that business, then
the economic viability of that business must be assessed.
Sec. 5001.306 Specific application requirements for B&I projects.
In addition to the requirements specified in Sec. 5001.303, as
applicable, a lender requesting a B&I loan guarantee must submit the
information specified in paragraph (a) of this section if the
guaranteed loan amount is more than $600,000, or in (b) of this section
if the guaranteed loan amount is $600,000 or less.
(a) Applications requesting a guaranteed loan in an amount greater
than $600,000. (1) The Agency is required to submit project information
to the United States Department of Labor for their concurrence if the
proposed guaranteed loan is in excess of $1,000,000.00 and will
increase direct employment by more than 50 employees. The lender must
provide sufficient project and demographic information to the Agency
for completion of a Department of Labor review.
(2) A pro forma balance sheet projected for loan closing.
(3) The Agency may require a Feasibility Study when the lender's
analysis, borrower's business plan, or project information is not
sufficient to determine the technical feasibility, market feasibility,
or economic viability of the project.
(i) For guaranteed loans greater than $1,000,000.00 to a new
business, a feasibility study prepared by an independent qualified
consultant acceptable to the Agency is required. The scope of the
feasibility study will be determined by the Agency and is dependent on
the complexity of the project and the borrower.
(ii) For loans of $1,000,000.00 or less to new and existing
businesses, the Agency may require a feasibility study when the
lender's analysis or other borrower information is not sufficient to
determine the technical feasibility or economic viability of the
project, or if the project will significantly affect the operations of
a borrower who is an existing business and its historic cash flow.
(iii) A technical report is required for RES identified in Sec.
5001.307(e) and for projects utilizing other integrated processing
equipment and systems. The contents of the technical report must be
consistent with the requirements of Sec. 5001.307(e)(1) and must
provide sufficient detail to enable the Agency to determine technical
merit. The report can be provided in the technical feasibility section
of a feasibility study or in a separate technical report.
(4) For companies listed on a major stock exchange or subject to
the Securities and Exchange Commission (SEC) regulations, a copy of
their most recent SEC Form 10-K, ``Annual Report Pursuant to section 13
or 15(d) of the Securities Exchange Act of 1934.''
(5) Current financial statements of affiliates.
(b) Applications requesting a guaranteed loan in an amount of
$600,000 or less. Guaranteed loan applications may be processed under
this paragraph (b) if the amount of the guaranteed loan does not exceed
$600,000, provided the Agency determines that the lender's analysis,
borrower's business plan, or other project or borrower information
submitted by the lender is sufficient to determine the technical
feasibility, market feasibility, and economic viability of the project.
If any of the items in paragraphs (a)(1) through (4) of this section
apply, the lender must collect the information and maintain it
[[Page 42550]]
in their file. A Lender may need to resubmit or modify an application
if the application does not contain sufficient information for the
Agency to make an informed loan approval decision.
(1) Lenders submitting applications under this paragraph (b) must
include the following information:
(i) Narrative description of the project including the history of
the borrower and adequacy of cash flow and borrower equity;
(ii) Required financial statements including a current Agency-
acceptable balance sheet and year-to-date income statements;
(iii) Security available for the guaranteed loan including
collateral and payment guarantees;
(iv) Strengths and weaknesses of the guaranteed loan and the
Lender's need for the loan guarantee to mitigate specific risks.
(2) The lender may elect to not submit the following application
documentation to the Agency, but must have the information available in
its file for review:
(i) Narrative description of management capabilities and corporate
structure of the borrower;
(ii) Environmental information for the project and any
environmental reviews;
(iii) Agency-acceptable historical balance sheets and income
statements of the borrower and its affiliates;
(iv) Financial statements of any personal, partnership, or
corporate guarantors.
Sec. 5001.307 Specific application requirements for REAP projects.
In addition to the requirements specified in Sec. 5001.303, a
lender seeking a loan guarantee for a REAP project must submit the
information identified below based on total project costs.
(a) Borrower eligibility information. (1) Eligible borrowers must
meet the definition of agricultural producer or rural small business as
defined in Sec. 5001.3. Agricultural producers seeking funding for a
RES or EEI project may apply as either a rural small business or as an
agricultural producer, provided they meet the applicable eligibility
requirements. Agricultural producers seeking funding for an EEE project
must be eligible and apply as an Agricultural Producer.
(2) The Borrower must provide the primary NAICS code applicable to
the borrower's business concern and certify on the Agency approved
application form or system that it meets the definition of agricultural
producer or rural small business. The Agency reserves the right to
request supporting documentation to verify borrower eligibility.
(b) Borrower description. Describe the ownership of the Borrower,
including the information specified in paragraphs (b)(1) through (3) of
this section, as applicable. Include a description of the Borrower's
existing farm, ranch, or business operation, including how long the
borrower has been in operation.
(1) Describe how the borrower meets the ownership and control
requirements as identified in Sec. 5001.126(e)(2).
(2) For each entity(ies) the borrower controls or entity(ies) it is
controlled by, provide a list of the individual owners with their
contact information. Describe the relationship between the borrower and
the other entity(ies), including percentage of ownership and control,
management, passive investor ownership, and any products exchanged.
Organizational charts to demonstrate the structure of the borrower
should be submitted when available.
(3) Identify the ethnicity, race, and gender of the borrower.
Identify if the borrower is a veteran. This information is optional and
is not required for a complete application but may be used by the
Agency to award priority points.
(c) Project information. Provide information concerning the project
as a whole and its relationship to the borrower's operations,
including:
(1) Identification as to whether the project is an RES, EEI, or EEE
project. Include a description and the location of the project;
(2) Description of how the project will have a positive effect on
resource conservation, public health, and the environment;
(3) Identification of the amount of funds and the source(s) of
funds the borrower is proposing to use for the project. Provide written
commitments for funds at the time the application is submitted to
receive points under this scoring criterion.
(i) For project funding provided by the borrower, documentation may
include bank statements that demonstrates availability of funds.
(ii) For project funding that comes from a third party, a
commitment letter signed by an authorized official of the third party.
The letter must be specific to the project and must identify the dollar
amount of any loan or other funding and any applicable rates and terms.
If the third-party commitment is for a loan, the commitment must be
firm; a letter-of-intent or pre-qualification letter subject to
underwriting requirements or contingencies is not acceptable.
(d) Feasibility study. For RES projects only, when deemed necessary
by the lender or Agency, an analysis conducted in conformance with the
definition of feasibility study found in Sec. 5001.3 and with
applicable content in appendix A to subpart D of this part.
(e) Technical report. All eligible projects must have technical
merit and provide information as identified in Sec. 5001.106(e), Sec.
5001.107(d), or Sec. 5001.108(d) and (e)(1) through (3) of this
section.
(1) Level of detail. Information provided must be in sufficient
detail to enable the Agency to determine the technical merit of the
project. Design drawings and process flowcharts are encouraged as
exhibits. The technical report requirements can be provided in the
technical feasibility section of a feasibility study, instead of
completing a separate technical report.
(i) Sufficient information to enable the calculation of simple
payback as defined in Sec. 5001.3;
(ii) For RES Projects, sufficient information to enable the
calculation of the percentage of historical use of energy compared to
the amount of renewable energy that will be generated once the project
is operating at its steady state operating level. If the project is
closely associated with a residence, satisfactory demonstration must be
made that 50 percent or more of the projected renewable energy will
benefit the agricultural operation or rural small business; and
(iii) Demonstrate that the RES, EEI, or EEE project will operate or
perform over the project's useful life in a reliable, safe, and a cost-
effective manner, which may include but is not limited to addressing
project design, installation, operation, maintenance, and warranties.
(iv) In addition, the following technologies, must provide a
technical report in accordance with paragraphs (e)(1)(v) through (viii)
of this section, as applicable:
(A) Hydrogen;
(B) Ocean energy;
(C) Geothermal electric generation;
(D) Anaerobic digesters and biogas;
(E) Biomass;
(F) Hybrid applications;
(G) Renewable energy systems with storage components; and
(H) Energy efficiency improvements
(v) For total project costs in the amount of $80,000 or less, a
technical report, as identified in Sec. 5001.303(c)(15), prepared in
accordance with the following paragraphs, as applicable:
(A) EEI technical reports. Each EEI technical report submitted
under this section must provide:
(1) A description of the proposed EEI, including its intended
purpose;
(2) Vendor/Installer certification that the EEI project uses
commercially available technology;
[[Page 42551]]
(3) Vendor/Installer certified projections on the quantity of
energy to be saved;
(4) Certification by vendor/installer that they are qualified to
complete the project as intended;
(5) Vendor/installer certification that the EEI system will operate
and perform over the project's useful life in a reliable and cost-
effective manner; and
(6) An estimate of simple payback, including all calculations,
documentation, and any assumptions.
(B) RES technical reports. Each RES technical report submitted
under this section must provide:
(1) A description of the proposed RES project, including its
intended purpose;
(2) Vendor/installer certified projections on energy to be replaced
and/or generated, including the quality and availability of the
renewable resource to the project; if there is a residence closely
associated with the RES project, the historical amount of energy used
by the residence and the historical amount of energy used by the
agricultural operation or rural small business, as applicable, to
satisfactorily demonstrate 50 percent or more of proposed generation
will benefit the agricultural operation or rural small business;
(3) Vendor/installer certification that the RES project uses
commercially available technology;
(4) Certification that the vendor/installer is qualified to
complete the project as intended;
(5) Certification that the project will perform over its useful
life in a reliable and cost-effective manner; and
(6) The projected financial performance of the project. The
description must address total project costs, revenues accrued from the
sale or crediting of energy, quantity and value of energy offset, and
revenue from byproducts. Include applicable investment and other
production incentives and indicate if they are one time or reoccurring
incentives. Provide an estimate of simple payback, including all
calculations, documentation, and any assumptions.
(C) EEE technical reports. Each EEE technical report submitted
under this section, regardless of total project costs, must provide:
(1) A description of the proposed EEE and its intended purpose,
including baseline data, specifications, and efficiency data;
(2) Vendor/Installer certification that the EEE project uses
commercially available technology;
(3) Vendor/Installer certification of the proposed energy
consumption quantity and price per unit of the energy efficiency
equipment to be installed;
(4) Certification by vendor/installer that they are qualified to
complete the project as intended;
(5) Vendor/installer certification that the EEE system will operate
and perform over the project's useful life in a reliable and cost-
effective manner; and
(6) An estimate of simple payback, including all calculations,
documentation, and any assumptions.
(vi) For EEI guaranteed loan projects with total project costs
greater than $80,000, the technical report identified in paragraph
(e)(1)(v)(A) of this section applies, except that appendix C to subpart
D of this part is to be followed to prepare the report.
(vii) For RES guaranteed loan projects with total project costs
greater than $80,000 and up to but not including $200,000, the
technical report identified in paragraph (e)(1)(v)(B) of this section
applies, except that appendix D to subpart D of this part is to be
followed to prepare the report.
(viii) For RES guaranteed loan projects with estimated total
project costs of $200,000 or greater, the technical report identified
in paragraph (e)(1)(v)(B) of this section applies, except that appendix
E to subpart D of this part is to be followed to prepare the report.
(2) Modifications. If the technical report is prepared prior to the
borrower's selection of a final design, equipment vendor, or
contractor, or other significant decision, the borrower may modify the
report and resubmit it to the Agency, provided that the overall scope
of the project is not materially changed as determined by the Agency.
Changes in the technical report may require additional environmental
documentation in accordance with 7 CFR part 1970.
(3) Hybrid projects. If the application is for a hybrid project,
technical reports must be prepared for each technology that comprises
the hybrid project.
Sec. Sec. 5001.308-5001.314 [Reserved]
Sec. 5001.315 Application evaluation and award provisions.
(a) General. The Agency will evaluate all Applications according to
the provisions of this part and may require the lender to obtain
additional assistance in those areas where the lender does not have the
necessary expertise to originate or service the guaranteed loan. For
the purposes of this paragraph (a), ``those areas'' mean:
(1) The type and complexity of the financing (e.g., asset-based
financing, cash flow financing, and bond financing); and
(2) Loans to borrowers engaged in industries where the lender has
little or no origination and/or servicing experience.
(b) Evaluation and eligibility determinations. The Agency will
review each application to make a formal determination as to: The
eligibility of the borrower, lender, project, and guaranteed loan
purpose and proposed use of funds; if there is a reasonable assurance
of repayment ability; if sufficient collateral and equity exists; if
the proposed guaranteed loan complies with all applicable statutes and
regulations; and if the environmental review is complete.
(1) If the Agency's evaluation and determination in accordance with
this paragraph (b) is favorable, the Agency will proceed in accordance
with paragraph (c) of this section.
(2) If the Agency's evaluation and determination in accordance with
this paragraph (b) is unfavorable, the Agency will notify the lender,
in writing, as applicable, identifying the reason(s) for determining
ineligibility and any applicable appeal or review rights. No further
processing of the application will occur.
(c) Priority score. The Agency will score each eligible application
based on the point system for the respective program identified in
Sec. Sec. 5001.316 through 5001.319.
(1) Lenders must provide necessary information related to
determining the score, if requested by the Agency. To the extent
possible, lenders should consider the established priorities of the
Agency when submitting projects for a loan guarantee. Higher scoring
applications will receive first consideration for funding.
(2) The Agency may establish a minimum priority score for each
guarantee program. The Agency will, if established, publish the minimum
score in a document in the Federal Register. Applications that do not
meet the applicable minimum score will compete with all other
guaranteed loan applications for each specific program in a competition
on the first business day of September of the Federal fiscal year in
which the application is ready for funding.
(d) Funding selected applications. Each program identified in Sec.
5001.1 will consider applications for funding in the order they are
received by the Agency. If the Agency approves the application and
guaranteed funds are available, the Agency will issue a conditional
commitment to the lender in accordance with Sec. 5001.451 of subpart
E. In the event total loan requests exceed the amount of funding
available the
[[Page 42552]]
applications will be ranked for priority by each program. As
applications are funded, the remaining guaranteed loan funding
authority may be insufficient to fund the next highest scoring
application or applications (where two or more applications receive the
same priority score). The Agency will use the procedures described in
paragraphs (d)(1) and (2) of this section as often as necessary to
consider all applications as appropriate.
(1) If the remaining funds are insufficient to fund the next
highest scoring application completely, the Agency will notify the
lender and offer the lender the opportunity to accept the remaining
funds. If the lender does not accept the offer, the Agency will process
the next highest scoring application.
(2) If the remaining funds are insufficient to fund each
application that receives the same priority score, the Agency will
notify each lender and offer the lenders the opportunity to accept a
prorated share of the remaining funds.
(3) Any lender offered less than the full amount requested under
either paragraph (d)(1) or (2) of this section can either accept the
funds available or request to compete in the next funding cycle. There
is no assurance that the application(s) will be funded in a subsequent
funding cycle.
(4) If a lender agrees to the lower loan guarantee amount offered
by the Agency under either paragraph (d)(1) or (2) of this section, the
lender must certify that the purpose(s) of the project can still be met
at the lower funding level and must provide documentation that the
borrower has obtained the remaining funds needed to complete the
Project as originally proposed.
(e) Handling of ranked applications not funded. The Agency will
withdraw from consideration ranked applications that have not received
funding as follows:
(1) If an unfunded application has a priority score equal to or
greater than any applicable minimum score, the Agency will retain the
application for consideration in subsequent funding cycles. If the
unfunded application is not selected for funding after 12 months,
including the first month in which the application was considered, the
Agency will withdraw the application from further funding
consideration.
(2) If an unfunded application has a priority score less than any
applicable minimum score, and remains unfunded after the competition
held on the first business day of September of the fiscal year in which
the application is ready for funding, the Agency will withdraw the
application from further funding consideration.
(f) Commencement of the project. The borrower assumes all risks if
the borrower purchases real property or equipment or starts
construction of the project to be financed by a guaranteed loan after
the complete application has been received by the Agency, but prior to
the Agency's issuance of the conditional commitment and the lender and
borrower's acceptance of the conditional commitment.
(g) Application withdrawal. During the period between the
submission of an application and prior to issuance of the conditional
commitment, the lender must notify the Agency, in writing, if the
project is no longer viable or the borrower no longer is requesting
financial assistance for the project. When the lender notifies the
Agency, the Agency will rescind the selection and withdraw the
application, as applicable.
Sec. 5001.316 CF project priority point system and reservation of
funds.
This section applies to CF projects seeking a loan guarantee.
Paragraphs (a) through (d) of this section outline the criteria and
amount of priority points that may be awarded to an application. The
highest possible priority score is 55. Paragraph (e) of this section
outlines the reservation of funds for projects located in rural areas
of 20,000 population or less.
(a) Population priority. If the project will be located in a rural
community having a population of less than 20,000--15 points.
(b) Project priority. If the project will construct, enlarge,
extend or otherwise improve a public safety, health clinic, early
education, primary or secondary education facility--10 points.
(c) Leveraging priority. If the applicant commits other funds to
the project in the following percentages:
(1) 50 percent or more-15 points
(2) 20% up to 49%-10 points
(3) 5% up to 19%-5 points
(d) Administrator priority. When guaranteed loan funds are
requested from a National Office reserve, the Administrator may assign
up to 15 points to address:
(1) Geographic distribution of funds;
(2) Emergency conditions caused by economic problems or natural
disasters; or
(3) Initiatives that support the Agency's strategic plan.
(e)(1) Of the funds available each Federal fiscal year, as
published on the Agency's website, the following amounts shall be
reserved for projects in rural areas with a population of not more than
20,000 inhabitants:
(i) 100 percent of the first $200,000,000 so made available;
(ii) 50 percent of the next $200,000,000 so made available; and
(iii) 25 percent of all amounts exceeding $400,000,000 so made
available.
(2) On July 1 of each year, the Agency will evaluate the dollar
amount of complete applications on hand for projects in rural areas
with a population of not more than 20,000 inhabitants. The dollar
amount of the complete applications will be subtracted from the
reserved allocation identified in this paragraph (e) and the remaining
amount will be made available through the end of the Federal Fiscal
Year for projects in rural areas with a population of not more than
50,000 inhabitants.
Sec. 5001.317 WWD project priority points system.
This section applies to WWD projects seeking a loan guarantee. The
highest possible priority point score is 150.
(a) Population priority. If the project will primarily serve a
rural area having a population under 10,000, 20 points will be awarded.
(b) Health priorities. If the proposed project is:
(1) Needed to alleviate an emergency situation, correct
unanticipated diminution or deterioration of a water supply, or to meet
Safe Drinking Water Act requirements which pertain to a water system,
25 points will be awarded;
(2) Required to correct inadequacies of a wastewater disposal
system, or to meet health standards which pertain to a wastewater
disposal system, 25 points will be awarded; or
(3) Required to meet administrative orders issued to correct local,
State, or Federal solid waste violations, 15 points will be awarded.
(c) Service area priorities. An application is eligible to receive
points under each of the categories identified in paragraphs (c)(1)
through (3) of this section if the service area includes:
(1) An eligible area of long-term population decline according to
the last three decennial censuses, 5 points will awarded.
(2) A rural county that has had 20 percent or more of its
population living in poverty, as defined by the United States Census
Bureau, for the last 30 years, 5 points will be awarded.
(3) For a city or county with a current unemployment rate, as
determined by the Department of Labor, that is 125 percent of the
State-wide rate or greater, 5 points will be awarded. For projects
located in certain territories that may not have unemployment rates by
[[Page 42553]]
localities, if the applicant's proposed service area has an
unemployment rate exceeding 125 percent of the national unemployment
rate, 5 points will be awarded.
(d) Other priorities. Applications are eligible for points under
each of the following priorities:
(1) If the proposed project will merge ownership, management, and
operation of smaller facilities providing for more efficient management
and economical service, 10 points will be awarded.
(2) If the proposed project will enlarge, extend, or otherwise
modify existing facilities to provide service to additional rural
areas, 10 points will be awarded.
(3) If the applicant is a public body or Indian tribe, 5 points
will be awarded;
(4) If the amount funds committed to the project from sources other
than Rural Development is:
(i) 50 percent or more, 15 points will be awarded;
(ii) 20 percent to 49 percent, 10 points will be awarded;
(iii) 5 percent to 19 percent, 5 points will be awarded;
(5) If the project will serve Agency identified target areas, 5
points will be awarded;
(6) If the project primarily recycles solid waste products thereby
limiting the need for solid waste disposal, 5 points will be awarded;
and
(7) If the project will serve an area that has an unreliable
quality or supply of drinking water, 10 points will be awarded.
(e) In certain cases, the approval official may award up to 15
points to a project. The points may be awarded to projects in order to
improve compatibility and coordination between WWD and other agencies'
selection systems, to ensure effective RUS fund utilization, and to
assist those projects that are the most cost effective. A written
justification must be prepared and placed in the project file each time
these points are assigned.
(f) National office priorities. The Administrator may assign up to
15 additional points to account for items such as geographic
distribution of funds, the highest priority projects within a state,
and emergency conditions caused by economic problems or natural
disasters. The Administrator may delegate the authority to assign the
15 points to appropriate National Office staff.
Sec. 5001.318 B&I project priority point system.
This section applies to B&I projects seeking a loan guarantee. When
applications on hand have the same priority score, the Agency will give
preference to applications involving guaranteed loans from veterans. A
maximum of 105 points can be awarded.
(a) Population priority. If the project is located in an
unincorporated area or in a city with a population under 25,000, 5
points will be awarded.
(b) Location priority. An application is eligible to receive points
under each of the categories identified in paragraphs (b)(1) through
(3) of this section if the Project is located within:
(1) A distressed community in accordance with the Economic
Innovation Group distressed community index. The list can be found on
the Agency's website at: https://www.rd.usda.gov/onerdguarantee, 5
points will be awarded.
(2) A rural county that has had 20 percent or more of its
population living in poverty, as defined by the United States Census
Bureau, for the last 30 years, 5 points will be awarded.
(3) For a city or county with a current unemployment rate, as
determined by the Department of Labor, 125 percent of the State-wide
rate or greater, 5 points will be awarded. For projects located in
certain territories that may not have unemployment rates by localities,
if the applicant's proposed service area has an unemployment rate
exceeding 125 percent of the national unemployment rate, 5 points will
be awarded.
(4) The boundaries of a federally recognized Indian Tribe's
reservation, within Tribal trust lands, or within land owned by an
Alaska Native Regional or Village Corporation as defined by the Alaska
Native Claims Settlement Act, 5 points will be awarded.
(c) Guaranteed Loan features. An application is eligible to receive
points under each of the categories identified in paragraphs (c)(1)
through (4) of this section as follows:
(1) If the lender will price the guaranteed loan at an interest
rate equal to or less than the equivalent of the Wall Street Journal
published Prime Rate plus 1.5 percent, 5 points will be awarded.
(2) If the guaranteed loan is less than 60 percent of the total
project cost, 5 points will be awarded.
(3) For guaranteed loans not requesting an exception under Sec.
5001.456(c)(2), if the percentage of guarantee is 10 or more percentage
points less than the maximum allowable, 5 points will be awarded.
(4) If the business is owned by a qualified veteran, 5 points will
be awarded.
(d) High impact business development investment priorities. An
application is eligible to receive points under each of the categories
identified in paragraphs (d)(1) through (7) of this section below:
(1) If the industry is not already present in the local community,
5 points will be awarded.
(2) If the business has 20 percent or more of its sales in
international markets, 5 points will be awarded.
(3) If the business is locally owned and managed, 5 points will be
awarded.
(4) If the business will produce a natural resource value-added
product, 5 points will be awarded.
(5) If the business processes, distributes, aggregates, stores,
and/or markets locally or regionally produced agricultural food
products to underserved communities in accordance with Sec.
5001.105(b)(15)(ii), 5 points will be awarded.
(6) If the business creates or saves a minimum of five jobs with an
average wage exceeding 150 percent of the Federal minimum wage, 5
points will be awarded.
(7) If the business offers a healthcare benefits package to all
employees and pays at least 50 percent of the healthcare premium, 5
points will be awarded.
(e) Administrative points. An application is eligible to receive
points under paragraphs (e)(1) through (3) of this section.
(1) For projects awarded under State allocations the State Director
may assign up to 10 additional points to an application to account for
state-wide distribution of funds for natural disasters, local economic
emergency conditions, community economic development strategies, State
strategic plans, fundamental structural changes in a community's
economic base, or projects that will fulfill an Agency special
initiative.
(2) For projects requesting funds from the national reserve
account, the State Director may request up to 10 administrative points
from the Administrator.
(3) If an application is for a loan in excess of 10 million
dollars, the Administrator may assign up to an additional 10 points to
account for the nationwide geographic distribution of funds, or
projects that will fulfill an Agency special initiative.
Sec. 5001.319 REAP project priority point system.
This section applies to REAP projects seeking a loan guarantee. On
a periodic basis, the Agency will compete each complete and eligible
RES, EEI, and EEE application that is ready to be funded and whose
priority score, as determined in this section, meets or exceeds the
minimum priority score. Applications that do not meet the applicable
[[Page 42554]]
minimum score will be considered as provided in Sec. 5001.315(c)(2). A
maximum score of 90 points is possible.
(a) Environmental benefits. The Agency will award up to 5 points
under this criterion based on documentation in the application that the
project will have a positive effect on resource conservation, public
health, and the environment. If the project will have a positive impact
on:
(1) All three impact areas, 5 points will be awarded;
(2) Any two of the three impact areas, 3 points will be awarded; or
(3) Any one of the three impact areas, 1 point will be awarded.
(b) Energy generated, replaced, saved, or percent efficiency. The
Agency will award up to 25 points under this criterion. Each
application is eligible for points under both paragraphs (b)(1) and (2)
of this section.
(1) Quantity of energy generated or saved per RES/EEI loan amount
requested, or percent efficiency of EEE project. The Agency will award
up to 10 points under this sub-criterion. Points will be awarded for
either the amount of renewable energy generation per dollar of loan
amount requested, which includes those projects that are replacing
energy usage with a renewable source; or the actual annual average
energy savings over the most recent 12, 24, 36, 48, or 60 consecutive
months of operation per dollar of guaranteed loan amount requested; or
the percent efficiency of the EEE project. The Agency will not award
points for more than one category.
(i) Renewable energy systems. The quantity of energy generated or
replaced per guaranteed loan dollar requested will be determined by
dividing the projected total annual energy generated or replaced by the
RES or RES retrofit (minus energy for residential use), which will be
converted to BTUs, by the guaranteed loan dollars requested. Points
will be awarded under this sub-criterion based on the annual amount of
energy generated or replaced (minus energy for residential use) per
dollar of guaranteed loan amount requested for the RES project. The
Agency will award up to 10 points as determined under paragraph
(b)(1)(i)(A) and (B) of this section below. If the annual amount of
energy generated per dollar of guaranteed loan amount requested
calculated under paragraph (b)(1)(ii) of this section is:
(A) 50,000 BTUs or higher average annual energy generated or
replaced per dollar of guaranteed loan amount requested or higher, 10
points will be awarded; or
(B) Less than 50,000 BTUs annual energy generated or replaced per
dollar of guaranteed loan amount requested, points will be awarded
according to the result of taking the energy generated or replaced per
guaranteed loan dollar requested / 50,000 x 10 points. The points
awarded are rounded to the nearest hundredth of a point.
(ii) Energy efficiency improvements. The Agency will award up to 10
points under this sub-criterion based on the average annual energy
saved per dollar of guaranteed loan amount requested for the EEI
project. The Agency will award up to 10 points as determined under
paragraph (b)(1)(ii)(A) and (B) of this section.
(A) 50,000 BTUs or higher average annual energy saved per dollar of
guaranteed loan amount requested, 10 points will be awarded; or
(B) Less than 50,000 BTUs average annual energy saved per dollar of
guaranteed loan amount requested, points will be awarded according to
the result of taking the energy generated per loan dollar requested /
50,000 x 10 points. The points awarded are rounded to the nearest
hundredth of a point.
(iii) Energy efficient equipment and systems. If the increased
energy efficiency of the proposed equipment and systems is--
(A) 75 percent or greater, award 10 points;
(B) Less than 75 percent but equal to or greater than 50 percent,
award 5 points;
(C) Less than 50 percent but equal to or greater than 25 percent,
award 2.5 points; or
(D) Less than 25 percent, award 0 points.
(2) Quantity of energy replaced, generated, or saved, or percentage
of energy efficiency. The Agency will award up to 15 points under this
sub-criterion. Points will be awarded based on whether the project is
for energy replacement, energy generation, or energy savings, or
percentage of energy efficiency; points will not be awarded for more
than one category.
(i) Energy replacement. The Agency will award points under this
sub-criterion for an RES project based on the amount of energy replaced
by the project compared to the amount of energy used by the applicable
process(es) over a 12-month period. If the estimated energy produced is
more than 150 percent of the energy used by the applicable process(es),
the project will be scored as an energy generation project under
paragraph (b)(2)(ii) of this section.
(A) Documentation for energy replacement. For a RES project to
qualify as energy replacement, the borrower must provide documentation
in its application on prior energy use incurred by the borrower.
Proposed energy use, such as that attributed to an expansion, is not
considered in the replacement calculation. For a RES project involving
new construction and being installed to serve the new facility, the
project can be classified as energy replacement only if the borrower
can document prior energy use from a facility that is within plus or
minus 10 percent of the size of the facility it is replacing. The
estimated quantities of energy must be converted to either BTUs, watts,
or similar energy equivalents to facilitate scoring.
(B) Calculation. Energy replacement is determined by dividing the
quantity of renewable energy that the RES project is estimated would
have been generated if it were in place over the most recent 12-month
period by the quantity of energy actually consumed over the same period
by the applicable energy process(es) that is(are) consuming energy.
(C) Awarding of points. Using the results from paragraph
(b)(2)(ii)(B) of this section, if the percentage of energy replacement
is--
(1) Greater than 50 percent, 15 points will be awarded;
(2) Greater than 25 percent, but equal to or less than 50 percent,
10 points will be awarded; or
(3) Equal to or less than 25 percent, 5 points will be awarded.
(ii) Energy generation. If the RES project is intended for
production of energy or is a proposed retrofitting of an existing RES
which increases the amount of energy generated, the Agency will award
10 points.
(iii) Energy saved. The Agency will award up to 15 points under
this sub-criterion for an EEI project based on the percentage of
estimated energy saved by the installation of the project as determined
by the projections in the applicable energy assessment or energy audit.
If the estimated energy expected to be saved over the same period used
in the energy assessment or energy audit, as applicable, will be--
(A) 50 percent or greater, 15 points will be awarded;
(B) 35 percent up to, but not including 50 percent, 10 points will
be awarded;
(C) 20 percent up to, but not including 35 percent, 5 points will
be awarded; or
(D) Less than 20 percent, no points will be awarded.
(iv) Energy efficiency. If the percentage of energy efficiency is--
(A) Greater than 50 percent, 15 points will be awarded;
[[Page 42555]]
(B) Greater than 25 percent, but equal to or less than 50 percent,
10 points will be awarded; or
(C) Equal to or less than 25 percent, 5 points will be awarded.
(c) Commitment of funds. The Agency will award up to 15 points
under this criterion based on the percentage of acceptable written
commitment a borrower has from its other funding sources that are
documented with a complete application.
(1) Calculation. The percentage of written commitment is calculated
as follows: Percentage of written commitment = total amount of funds
for which written commitments have been submitted with the application
/ Total amount of matching funds and other funds required.
(2) Awarding of points. Using the result from paragraph (c)(1) of
this section, the Agency will award points as shown in paragraphs
(c)(2)(i) through (iii) of this section.
(i) If the percentage of written commitments is 100 percent of the
matching funds, 15 points will be awarded.
(ii) If the percentage of written commitments is less than 100
percent, but more than 50 percent, points will be awarded as follows:
((Percentage of written commitments - 50 percent) / (50 percent)) x 15
points, where points awarded are rounded to the nearest hundredth of a
point.
(iii) If the percentage of written commitments is 50 percent or
less, no points will be awarded.
(d) Previous grantees or borrowers. The Agency will award up to 15
points under this criterion based on whether the borrower has received
and accepted a REAP grant award under 7 CFR part 4280 or a guaranteed
loan commitment under either this part or 7 CFR part 4280.
(1) If the borrower has never received and accepted a grant award
under 7 CFR part 4280 or a guaranteed loan commitment under either this
part or 7 CFR part 4280, 15 points will be awarded.
(2) If the borrower has not received and accepted a grant award
under 7 CFR part 4280 or a guaranteed loan commitment under either this
part or 7 CFR part 4280 within the previous two Federal fiscal years,
10 points will be awarded.
(3) If the borrower has received and accepted a grant award under 7
CFR part 4280 or a guaranteed loan commitment under either this part or
7 CFR part 4280 within the previous two Federal fiscal years, no points
will be awarded.
(e) Existing businesses. A maximum of 5 points will be awarded for
an existing agricultural producer business or rural small business that
meets the definition of existing business in Sec. 5001.3.
(f) Simple payback. A maximum of 15 points will be awarded for this
criterion based on the simple payback of the project as defined in
Sec. 5001.3. Points will be awarded for either RES, EEI, or EEE;
points will not be awarded for more than one category.
(1) Renewable energy systems. If the simple payback of the project
is--
(i) Less than 10 years, 15 points will be awarded;
(ii) 10 years up to but not including 15 years, 10 points will be
awarded;
(iii) 15 years up to and including 25 years, 5 points will be
awarded; or
(iv) Longer than 25 years, no points will be awarded.
(2) Energy efficiency improvements. If the simple payback of the
project is:
(i) Less than 4 years, 15 points will be awarded;
(ii) 4 years up to but not including 8 years, 10 points will be
awarded;
(iii) 8 years up to and including 12 years, 5 points will be
awarded; or
(iv) Longer than 12 years, no points will be awarded.
(3) Energy efficient equipment and systems. If the simple payback
of the project is--
(i) Less than 4 years, 15 points will be awarded;
(ii) 4 years up to but not including 8 years, 10 points will be
awarded;
(iii) 8 years up to and including 12 years, 5 points will be
awarded; or
(iv) Longer than 12 years, no points will be awarded.
(g) Administrator priority points. Under this criterion, the
Administrator may award up to 10 points to an application based on the
conditions specified in paragraphs (g)(1) through (5) of this section.
Under no circumstances will an application receive more than 10 points
under this criterion.
(1) The application is for an under-represented technology.
(2) Selecting the application helps achieve geographic diversity.
(3) The borrower is a member of an unserved or under-served
population.
(i) The borrower is a veteran or veterans own 20 percent or more in
interest in the borrower. In order to receive points, the borrower must
sign a certification in its application to indicate that the borrower
has veteran status; or
(ii) The borrower is a member of a socially disadvantaged group or
members of socially disadvantaged group(s) own 20 percent or more in
interest in the borrower socially disadvantaged groups are groups whose
members have been subjected to racial, ethnic, or gender prejudice
because of their identity as members of a group without regard to their
individual qualities. In order to receive points, the application must
include a statement to indicate that borrower is a member of a socially
disadvantaged group.
(4) Selecting the application helps further a Presidential
initiative or a Secretary of Agriculture priority.
(5) The proposed project is located in a federally declared
disaster area. Declarations must be within the last 3 calendar years.
(6) The project is located in an area where 20 percent or more of
its population is living in poverty, as defined by the United States
Census Bureau; an underserved community; or an area which has
experienced long-term population decline, or loss of employment.
(h) Unused funding. After each periodic competition, the Agency
will roll any remaining guaranteed loan funding authority into the next
competition. At the end of each Federal fiscal year, the Agency may
elect at its discretion to allow any remaining multi-year funds to be
carried over to the next Federal fiscal year rather than selecting a
lower scoring application.
Sec. Sec. 5001.320-5001.400 [Reserved]
Appendix A to Subpart D of Part 5001--Feasibility Study Components
BILLING CODE 3410-15-P
[[Page 42556]]
[GRAPHIC] [TIFF OMITTED] TR14JY20.008
[[Page 42557]]
[GRAPHIC] [TIFF OMITTED] TR14JY20.009
[[Page 42558]]
Appendix B to Subpart D of Part 5001-- Financial Feasibility Reports
[GRAPHIC] [TIFF OMITTED] TR14JY20.010
[[Page 42559]]
[GRAPHIC] [TIFF OMITTED] TR14JY20.011
BILLING CODE 3410-15-C
Appendix C to Subpart D of Part 5001--Technical Reports for Energy
Efficiency Improvement (EEI) Projects With Total Project Costs of More
Than $80,000
Technical Reports for Energy Efficiency Improvement (EEI) Projects With
Total Project Costs of More Than $80,000
For all EEI projects with Total Project Costs of more than
$80,000, provide the information specified in Sections A and D and
in Section B or Section C, as applicable. If the application is for
an EEI project with Total Project Costs of $80,000 or less, please
see Sec. 5001.307 (e) for the technical report information to be
submitted with your application.
If the application is for an EEI project with Total Project
Costs of $200,000 and greater, you must conduct an Energy Audit
(EA). However, if the application is for an EEI project with a Total
Project Costs of less than $200,000, you may conduct either an
Energy Assessment or an Energy Audit. Energy Audits that meet the
American Society of Heating, Refrigeration and Air-Conditioning
Engineers (ASHREA) Level II Energy Survey; Analysis and American
National Standards Institute (ANSI); or American Society of
Agricultural and Biological Engineers (ASABE)_S162 Standard for
performing on farm Energy Audits will be considered by the Agency to
be acceptable audits.
Section A. Project Information
Describe how all the improvements to or replacement of an
existing building and/or equipment meet the requirements of being
Commercially Available. Describe how the design, engineering,
testing, and monitoring are sufficient to demonstrate that the
proposed project will meet its intended purpose, ensure public
safety, and comply with applicable laws, regulations, agreements,
permits, codes, and standards. Describe how all equipment required
for the EEI(s) is available and able to be procured and delivered
within the proposed project development schedule. In addition,
present information regarding component warranties and the
availability of spare parts.
Section B. Energy Audit
If conducting an EA, provide the following information.
(1) Situation Report. Provide a narrative description of the
existing building and/or equipment, its energy system(s) and usage,
and activity profile. Also include average price per unit of energy
(electricity, natural gas, propane, fuel oil, renewable energy,
etc.) paid by the customer for the most recent 12 months, or an
average of 2, 3, 4, or 5 years, for the building and equipment being
audited. Any energy conversion should be based on use rather than
source.
(2) Potential Improvement Description. Provide a narrative
summary of the potential improvement and its ability to reduce
energy consumption or improve energy efficiency, including a
discussion of reliability and durability of the improvements.
(i) Provide preliminary specifications for critical components.
(ii) Provide preliminary drawings of project layout, including
any related structural changes.
(iii) Identify significant changes in future related operations
and maintenance costs.
(iv) Describe explicitly how outcomes will be measured.
(3) Technical Analysis. Give consideration to the interactions
among the potential improvements and the current energy system(s).
(i) For the most recent 12 months, or an average of 2, 3, 4, or
5 years, prior to the date the application is submitted, provide
both the total amount and the total cost of energy used for the
original building and/or equipment, as applicable, for each
improvement identified in the potential project. In addition,
provide for each improvement identified in the potential project an
estimate of the total amount of energy that would have been used and
the total cost that would have been incurred if the proposed project
were in operation for this same time period.
(ii) Calculate all direct and attendant indirect costs of each
improvement;
(iii) Rank potential improvements measures by cost-
effectiveness; and
(iv) Provide an estimate of Simple Payback, including all
calculations, documentation, and any assumptions.
(4) Qualifications of the Auditor. Provide the qualifications of
the individual or entity which completed the Energy Audit.
Section C. Energy Assessment
If conducting an Energy Assessment, provide the following
information.
(1) Situation Report. Provide a narrative description of the
existing building and/or equipment, its energy system(s) and usage,
and activity profile. Also include average price per unit of energy
(electricity, natural gas, propane, fuel oil, renewable energy,
etc.) paid by the customer for the most recent 12 months, or an
average of 2, 3, 4, or 5 years, for the building and equipment being
evaluated. Any energy conversion shall be based on use rather than
source.
(2) Potential Improvement Description. Provide a narrative
summary of the potential improvement and its ability to reduce
energy consumption or improve energy efficiency.
(3) Technical Analysis. Giving consideration to the interactions
among the potential improvements and the current energy system(s),
provide the information specified in paragraphs (3)(i) through (iii)
of this appendix.
(i) For the most recent 12 months, or an average of 2, 3, 4, or
5 years, prior to the date the application is submitted, provide
both the total amount and the total cost of energy used for the
original building and/or equipment, as applicable, for each
improvement identified in the potential project. In addition,
provide for each improvement identified in the potential project an
estimate of the total amount of energy that would have been used and
the total cost that would have been incurred if the proposed project
were in operation for this same time period.
(ii) Document baseline data compared to projected consumption,
together with any
[[Page 42560]]
explanatory notes on source of the projected consumption data. When
appropriate, show before-and-after data in terms of consumption per
unit of production, time, or area.
(iii) Provide an estimate of Simple Payback, including all
calculations, documentation, and any assumptions.
(4) Qualifications of the Assessor. Provide the qualifications
of the individual or entity that completed the assessment. If the
Energy Assessment for a project with Total Project Costs of $80,000
or less is not conducted by Energy Auditor or Energy Assessor, then
the individual or entity must have at least 3 years of experience
and completed at least five Energy Assessments or Energy Audits on
similar type projects.
Section D. Qualifications
Provide a resume or other evidence of the contractor or
installer's qualifications and experience with the proposed EEI
technology. Any contractor or installer with less than 2 years of
experience may be required to provide additional information in
order for the Agency to determine if they are qualified installer/
contractor.
Appendix D to Subpart D of Part 5001--Technical Reports for Renewable
Energy System (RES) Projects With Total Project Costs of Less Than
$200,000 but More Than $80,000
Technical Reports for Renewable Energy System (RES) Projects With Total
Project Costs of Less Than $200,000 but More Than $80,000
Provide the information specified in Sections A through D for
each technical report prepared under this appendix. A Renewable
Energy Site Assessment may be used in lieu of Sections A through C
if the Renewable Energy Site Assessment contains the information
requested in Sections A through C. In such instances, the technical
report would consist of Section D and the Renewable Energy Site
Assessment.
Note: If the Total Project Cost for the RES project is $80,000
or less, this appendix does not apply. Instead, for such projects,
please provide the information specified in Sec. 5001.307(e).
Section A. Project Description
Provide a description of the project, including its intended
purpose and a summary of how the project will be constructed and
installed. Describe how the system meets the definition of
Commercially Available. Identify the project's location and describe
the project site.
Section B. Resource Assessment
Describe the quality and availability of the renewable resource
to the project. Identify the amount of Renewable Energy generated
that will be generated once the proposed project is operating at its
steady state operating level. If applicable, also identify the
percentage of energy being replaced by the system.
If the application is for a Bioenergy Project, provide
documentation that demonstrates that any and all woody biomass
feedstock from National Forest System land or public lands cannot be
used as a higher value wood-based product.
Section C. Project Economic Assessment
Describe the projected financial performance of the proposed
project. The description must address Total Project Costs, energy
savings, and revenues, including applicable investment and other
production incentives accruing from Government entities. Revenues to
be considered shall accrue from the sale of energy, offset or
savings in energy costs, byproducts, and green tags. Provide an
estimate of Simple Payback, including all calculations,
documentation, and any assumptions.
Section D. Project Construction and Equipment Information
Describe how the design, engineering, testing, and monitoring
are sufficient to demonstrate that the proposed project will meet
its intended purpose, ensure public safety, and comply with
applicable laws, regulations, agreements, permits, codes, and
standards. Describe how all equipment required for the RES is
available and able to be procured and delivered within the proposed
project development schedule. In addition, present information
regarding component warranties and the availability of spare parts.
Section E. Qualifications of Key Service Providers
Describe the key service providers, including the number of
similar systems installed and/or manufactured, professional
credentials, licenses, and relevant experience. When specific
numbers are not available for similar systems, estimations will be
acceptable.
Appendix E to Subpart D of Part 5001--Technical Reports for Renewable
Energy System (RES) Projects With Total Project Costs of $200,000 and
Greater
Technical Reports for Renewable Energy System (RES) Projects With Total
Project Costs of $200,000 and Greater
Provide the information specified in Sections A through G for
each technical report prepared under this appendix. Provide the
resource assessment under Section C that is applicable to the
project. For hybrid projects, technical reports must be prepared for
each technology that comprises the hybrid project.
Section A. Qualifications of the Project Team
Describe the project team, their professional credentials, and
relevant experience. The description shall support that the project
team key service providers have the necessary professional
credentials, licenses, certifications, and relevant experience to
develop the proposed project.
Section B. Agreements and Permits
Describe the necessary agreements and permits (including any for
local zoning requirements) required for the project and the
anticipated schedule for securing those agreements and permits. For
example, Interconnection Agreements and Power Purchase Agreements
are necessary for all Renewable Energy projects electrically
interconnected to the utility grid.
Section C. Resource Assessment
Describe the quality and availability of the renewable resource
and the amount of Renewable Energy generated through the deployment
of the proposed system. For all Bioenergy Projects, except Anaerobic
Digesters Projects, complete Section C.3 of this appendix. For
Anaerobic Digester Projects, complete Section C.6 of this appendix.
(1) Wind. Provide adequate and appropriate data to demonstrate
the amount of renewable resource available. Indicate the source of
the wind data and the conditions of the wind monitoring when
collected at the site or assumptions made when applying nearby wind
data to the site.
(2) Solar. Provide adequate and appropriate data to demonstrate
the amount of renewable resource available. Indicate the source of
the solar data and assumptions.
(3) Bioenergy/Biomass Project. Provide adequate and appropriate
data to demonstrate the amount of renewable resource available.
Indicate the type, quantity, quality, and seasonality of the
Renewable Biomass resource, including harvest and storage, where
applicable. Where applicable, also indicate shipping or receiving
method and required infrastructure for shipping. For proposed
projects with an established resource, provide a summary of the
resource. Document that any and all woody biomass feedstock from
National Forest System land or public lands cannot be used as a
higher value wood-based product.
(4) Geothermal Electric Generation. Provide adequate and
appropriate data to demonstrate the amount of renewable resource
available. Indicate the quality of the geothermal resource,
including temperature, flow, and sustainability and what conversion
system is to be installed. Describe any special handling of cooled
geothermal waters that may be necessary. Describe the process for
determining the geothermal resource, including measurement setup for
the collection of the geothermal resource data. For proposed
projects with an established resource, provide a summary of the
resource and the specifications of the measurement setup.
(5) Geothermal Direct Generation. Provide adequate and
appropriate data to demonstrate the amount of renewable resource
available. Indicate the quality of the geothermal resource,
including temperature, flow, and sustainability and what direct use
system is to be installed. Describe any special handling of cooled
geothermal waters that may be necessary. Describe the process for
determining the geothermal resource, including measurement setup for
the collection of the geothermal resource data. For proposed
projects with an established resource, provide a summary of the
resource and the specifications of the measurement setup.
(6) Anaerobic Digester Project/Biogas. Provide adequate and
appropriate data to demonstrate the amount of renewable resource
available. Indicate the substrates
[[Page 42561]]
used as digester inputs, including animal wastes or other Renewable
Biomass in terms of type, quantity, seasonality, and frequency of
collection. Describe any special handling of feedstock that may be
necessary. Describe the process for determining the feedstock
resource. Provide either tabular values or laboratory analysis of
representative samples that include biodegradability studies to
produce gas production estimates for the project on daily, monthly,
and seasonal basis. If an anerobic digester project, identify the
type of operation (e.g., dairy, swine, layer, etc.), along with
breed, herd population size and demographics, and the type of waste
collection method and frequency information available. For the
biogas produced, identify the type of digester (e.g., mixed, plug-
flow, attached film, covered lagoon, etc.), if applicable, or the
method of capture (landfill, sewage waste treatment, etc.) and
treatment. Identify the system designer and determine the digester
design assumptions such as the number and type of animals, the
bedding type and estimated annual quantity used, the manure and
wastewater volumes, and the treatment of digester effluent (e.g.,
none, solids separation by screening, etc. with details including
use or method of disposal).
(7) Hydrogen Project. Provide adequate and appropriate data to
demonstrate the amount of renewable resource available. Indicate the
type, quantity, quality, and seasonality of the Renewable Biomass
resource. For solar, wind, or geothermal sources of energy used to
generate hydrogen, indicate the renewable resource where the
hydrogen system is to be installed. Local resource maps may be used
as an acceptable preliminary source of renewable resource data. For
proposed projects with an established renewable resource, provide a
summary of the resource.
(8) Hydroelectric/Ocean Energy Projects. Provide adequate and
appropriate data to demonstrate the amount of renewable resource
available. Indicate the quality of the resource, including
temperature (if applicable), flow, and sustainability of the
resource, including a summary of the resource evaluation process and
the specifications of the measurement setup and the date and
duration of the evaluation process and proximity to the proposed
site. If less than 1 year of data is used, a Qualified Consultant
must provide a detailed analysis of the correlation between the site
data and a nearby, long-term measurement site.
(9) Renewable Energy Systems with Storage Components. Provide
adequate and appropriate data to demonstrate the amount of renewable
resource available. Indicate the type, quantity, quality, and
seasonality of the Renewable Energy resource, where applicable.
Indicate the storage system specifications and the integrity of the
system in conjunction with the renewable energy system it is
integrated with, including application, size, lifetime, response
time, capital and maintenance costs associated with the operation as
well as the distribution of the stored resource(s).
Section D. Design and Engineering
Describe the intended purpose of the project and the design,
engineering, testing, and monitoring needed for the proposed
project. The description shall support that the system will be
designed, engineered, tested, and monitored so as to meet its
intended purpose, ensure public safety, and comply with applicable
laws, regulations, agreements, permits, codes, and standards. In
addition, identify that all major equipment is Commercially
Available, including proprietary equipment, and justify how this
unique equipment is needed to meet the requirements of the proposed
design. In addition, information regarding component warranties and
the availability of spare parts must be presented.
Section E. Project Development
Describe the overall project development method, including the
key project development activities and the proposed schedule,
including proposed dates for each activity. The description shall
identify each significant historical and projected activity, its
beginning and end, and its relationship to the time needed to
initiate and carry the activity through to successful project
completion. The description shall address Applicant project
development cash flow requirements. Details for equipment
procurement and installation shall be addressed in Section F of this
Appendix. Applications should include a concise development schedule
with timelines for activities.
Section F. Equipment Procurement and Installation
Describe the availability of the equipment required by the
system. The description shall support that the required equipment is
available and can be procured and delivered within the proposed
project development schedule. Describe the plan for site development
and system installation, including any special equipment
requirements. In all cases, the system or improvement shall be
installed in conformance with manufacturer's specifications and
design requirements, and comply with applicable laws, regulations,
agreements, permits, codes, and standards.
Section G. Operations and Maintenance
Describe the operations and maintenance requirements of the
system, including major rebuilds and component replacements
necessary for the system to operate as designed over its useful
life. The warranty must cover and provide protection against both
breakdown and a degradation of performance. The performance of the
RES or EEI shall be monitored and recorded as appropriate to the
specific technology.
Subpart E--Loan and Guarantee Provisions
Loan Provisions
Sec. 5001.401 Interest rate provisions.
Interest rates, interest rate caps, and incremental interest rate
adjustment limitations on a guaranteed loan are negotiated between the
Lender and the borrower. The interest rate for a guaranteed loan can be
either fixed or variable, or a combination thereof, as long as it is a
legal rate. Interest rates cannot be more than those rates the lender
customarily charges its borrowers for non-guaranteed loans in similar
circumstances in the ordinary course of business. The Agency encourages
each lender to use the secondary market and pass interest-rate savings
on to the borrower.
(a) Different rates on guaranteed and unguaranteed portion of the
guaranteed loan. It is permissible to have different interest rates on
the guaranteed and unguaranteed portions of the loan.
(b) Variable interest rates. A variable interest rate must be an
interest rate that is tied to a published base rate, as published in a
national or regional financial publication, and is agreed to by the
Agency.
(1) The variable interest base rate must be specified in the
promissory note along with any interest factors (e.g., National Prime
plus 1.0 percent).
(2) The lender may adjust the variable interest rate at different
intervals during the term of the loan, but not more often than
quarterly.
(3) The lender must incorporate, within the variable rate
promissory note, a provision for adjustment of payment installments to
fully amortize the loan by its maturity date.
(c) Multi-rates. When multi-rates are used, the lender must provide
the Agency with the overall effective Interest rate for the entire
loan.
(d) Interest rate changes. Any change in the base rate or fixed
interest rate between issuance of the conditional commitment and the
issuance of the loan note guarantee must be approved by the Agency.
Approval of such a change must be shown as an amendment to the
conditional commitment and must be reflected on the guaranteed loan
closing report form.
Sec. 5001.402 Term length, loan schedule, and repayment.
(a) Term length. The lender, with Agency concurrence, will
establish and justify the guaranteed loan term based on the use of
guaranteed loan funds, the useful economic life of the assets being
financed and those used as collateral, and the borrower's repayment
ability. The maximum term allowable for final guaranteed loan maturity
is limited to the justified useful life of the project or assets used
as collateral but may not exceed 40 years or limitations in the
applicable State statute, whichever is less.
(b) Guaranteed loan schedule and repayment. The lender must
structure repayment in consideration of the borrower's cash flow and in
accordance with the provisions of this section and
[[Page 42562]]
the loan agreement. Scheduled guaranteed loan payments shall be made no
less frequently than annually. In addition:
(1) Both the guaranteed and unguaranteed portions of the loan must
be amortized over the same term.
(2) Guaranteed loans must require a periodic payment schedule that
will retire the debt over the term of the loan without a balloon
payment.
(3) If the promissory note provides for an interest-only period,
interest must be paid at least annually starting on a date that is no
more than one year from the date of the promissory note. The first full
payment on the guaranteed loan including principal and interest must be
due and payable within three years from the date of the promissory note
or as soon as the project is operational and has begun to generate
income, whichever occurs first.
(4) There must be no ``due-on-demand'' clauses without cause.
Regardless of any ``due-on-demand'' with cause provision in a lender's
promissory note, the Agency must concur in any acceleration of the
guaranteed loan unless the basis for acceleration is monetary default.
Sec. 5001.403 Lender fees.
(a) The lender may charge the borrower reasonable, routine, and
customary charges and fees for the guaranteed loan provided they are
similar to those charges the lender assesses other borrowers for the
same type of loan not subject to a loan guarantee. The lender must
document such fees in the application. The lender may also charge
routine and customary prepayment penalties and late payment fees for
the guaranteed loan, which must be stated in the guaranteed loan
documents.
(b) Default charges, penalty interest, late payment fees, and
additional interest expenses are not covered by the loan note guarantee
and cannot be added to the principal or Interest due under any loan
note guarantee in the event of a loss claim as prescribed in Sec.
5001.521or a repurchase as prescribed in Sec. 5001.511.
Sec. Sec. 5001.404-5001.405 [Reserved]
Sec. 5001.406 Guaranteed loan amounts.
Applicable guaranteed loan amounts depend on the type of project
and the source of its funding.
(a) CF projects. The maximum amount of a CF guaranteed loan that
may be made to a borrower, including the guaranteed and unguaranteed
portions of any CF guaranteed loans, the outstanding principal and
interest balance of any existing CF guaranteed loans, and any new CF
guaranteed loan that is the subject of an application must not exceed
$100 million.
(b) WWD projects. The maximum amount of a WWD guaranteed loan that
may be made to a borrower, including the guaranteed and unguaranteed
portions of any WWD guaranteed loans, the outstanding principal and
interest balance of any existing WWD guaranteed loans, and any new WWD
guaranteed loan that is the subject of an application must not exceed
$50 million.
(c) B&I projects. The maximum total amount of B&I guaranteed loans
(including the guaranteed and unguaranteed portions of any B&I
guaranteed loans, the outstanding principal and interest balance of any
existing B&I guaranteed loans, and any new B&I guaranteed loan that is
the subject of an application) that may be made to a borrower is
limited to a maximum amount of $25 million. The Secretary, whose
authority may not be redelegated, may approve, at the Secretary's
discretion, guaranteed loans in excess of $25 million and up to $40
million for rural cooperatives that process value-added agricultural
commodities in accordance with Sec. 5001.105(b)(18)(i).
(d) REAP projects. The amount of a guaranteed loan that will be
made available to an eligible project and borrower under this part will
be at least $5,000 not to exceed 75 percent of eligible project costs.
(1) The maximum total amount of REAP guaranteed loans made to a
borrower, including the guaranteed and unguaranteed portions of all
REAP guaranteed loans, the outstanding principal and interest balance
of any existing REAP guaranteed loans and the new REAP guaranteed loan
that is the subject of an application, must not exceed $25 million.
(2) The total amount of funds available to agricultural producers
for energy efficient equipment and systems will not exceed 15 percent
of annual funds available to the program.
Sec. 5001.407 Percentage of loan guarantee.
The percent of loan guaranteed may vary from program to program.
The maximum guarantee is 90 percent of eligible guaranteed loan loss
The Agency will set annually a guarantee percentage by program that
will apply to loans guaranteed within each program. The annual
guarantee percentage will take current Federal credit policy into
consideration and may be set at or below the maximum allowed authorized
by statute. The Agency will announce annual guarantee percentages each
fiscal year by publishing a document in the Federal Register in
accordance with Sec. 5001.10.
Sec. 5001.408 Participation or assignment of guaranteed loan.
(a) General. The lender may participate or assign all or part of
the guaranteed portion of the guaranteed loan on the secondary market
subject to the conditions specified in paragraphs (a)(1) through (5) of
this section or retain the entire guaranteed loan.
(1) Participation. The lender may obtain participation in the loan
under its normal operating procedures; however, the lender must retain
title to and possession of the promissory note(s) and retain the
lender's interest in the collateral.
(2) Assignment. Any sale or assignment by the lender of the
guaranteed portion of the loan must be accomplished in accordance with
the conditions in the lender's agreement and the provisions of this
section. The holders and the borrower have no rights or obligations to
one another.
(3) Minimum retention by the lender. Minimum retention at all times
must be from the unguaranteed portion of the loan and cannot be
participated to another person.
(i) The lender must hold a minimum of 7.5 percent of the total loan
amount.
(ii) The lender must retain its security interest in the collateral
and retain the servicing responsibilities for the guaranteed loan.
(iii) The Agency can approve a reduction of the minimum retention
requirement below the applicable percentage on a case-by-case basis
when the lender establishes to the Agency's satisfaction that reduction
of the minimum retention percentage is necessary to meet compliance
with the lender's regulatory authority.
(4) Prohibition. The lender must not sell or participate any amount
of the guaranteed or non-guaranteed portion of the loan to the
borrower, to members of the borrower's immediate families, the
borrower's officers, directors, stockholders, other owners, or to a
parent company, an affiliate, or a subsidiary of the borrower.
(5) Secondary market. The lender must properly close their loan and
fully disburse loan funds for the purposes intended prior to sale of
the promissory note(s) or loan note guarantee on the secondary market.
The lender can sell all or part of the guaranteed portion of the loan
only if the loan is not in default.
(b) Lender's servicing fee to holder. The assignment guarantee
agreement
[[Page 42563]]
must clearly state the guarantee portion of loan as a percentage and
corresponding dollar amount of the guaranteed portion of the guaranteed
loan it represents and the lender's servicing fee. The lender must
maintain a minimum servicing fee of 50 basis points from any holder.
The lender cannot charge the Agency a servicing fee and servicing fees
are not eligible expenses for loss claim.
(c) Distribution of proceeds. The lender must apply all loan
payments and collateral proceeds received to the guaranteed and
unguaranteed portions of the loan on a pro rata basis. If multiple
types of Agency guaranteed loans exist for the same project, these will
also be paid on a pro rata basis.
(d) Promissory note(s). A loan note guarantee is issued to the
lender for a specific promissory note(s) executed between the lender
and the borrower. The lender must retain title to and possession of the
guaranteed promissory note(s), retain the lender's interest in the
collateral, and retain the servicing responsibilities for the
guaranteed loan. The lender is prohibited from issuing any additional
promissory notes at a later date for the same guaranteed loan.
(1) The lender may assign all or part of the guaranteed portion of
the loan, including interest strips, to one or more holders by using an
assignment guarantee agreement for each holder. The lender must
complete and execute the assignment guarantee agreement and return it
to the Agency for execution prior to holder execution.
(2) The lender or holder may request a certificate of incumbency
and signature from the Agency.
(3) A holder, upon written notice to the lender and the Agency, may
reassign the unpaid guaranteed portion of the loan, in full, sold under
the assignment guarantee agreement. Holders can only reassign the
complete block they have received and cannot subdivide or further split
their interest in the guaranteed portion of a loan or retain an
interest strip.
(4) Upon notification and completion of the assignment through the
use of the assignment guarantee agreement, the assignee succeeds to all
rights and obligations of the holder thereunder. Subsequent assignments
require notice to the lender and Agency using any format, including
that used by the Securities Industry and Financial Markets Association
(formerly known as the Bond Market Association), together with the
transfer of the original assignment guarantee agreement.
(5) The Agency will not execute a new assignment guarantee
agreement to affect a subsequent reassignment.
(6) The Agency will not reissue a duplicate assignment guarantee
agreement unless:
(i) The original was lost, stolen, destroyed, mutilated, or
defaced; and
(ii) The reissue is made in accordance with Sec. 5001.459.
(e) Rights and liabilities. When a guaranteed portion of a loan is
sold to a holder using an assignment guarantee agreement, the holder
succeeds to all rights of the lender under the loan note guarantee to
the extent of the portion purchased. The full, legal interest in the
promissory note must remain with the lender, and the lender remains
bound to all obligations under the loan note guarantee, lender's
agreement, and Agency regulations applicable to the guarantee.
(1) A guarantee and right to require purchase in accordance with
Sec. 5001.511 will be directly enforceable by a Holder notwithstanding
any fraud or misrepresentation by the lender or any unenforceability of
the loan guarantee by the lender, except for fraud or misrepresentation
of which the holder had actual knowledge at the time it became the
holder or in which the holder participates or condones.
(2) The lender must not represent a conditional commitment of
guarantee as a loan guarantee.
(3) The lender must reimburse the Agency for any payments the
Agency makes to a holder on the lender's behalf under the loan note
guarantee, given the lender would not be entitled to the payments had
they retained the entire interest in the loan.
Sec. Sec. 5001.409-5001.449 [Reserved]
Guarantee Provisions
Sec. 5001.450 General.
(a) Full faith and credit. A loan note guarantee issued under this
part constitutes an obligation supported by the full faith and credit
of the United States and is incontestable except for fraud or
misrepresentation of which a lender or holder has actual knowledge at
the time it becomes such lender or holder, or which a lender or holder
participates in or condones.
(b) Conditions of guarantee. A guaranteed loan under this part will
be evidenced by a loan note guarantee issued by the Agency.
(1) The entire loan must be secured by the same collateral with
equal lien priority for the guaranteed and unguaranteed portions of the
loan. The unguaranteed portion of the guaranteed loan will neither be
paid first nor given any preference or priority over the guaranteed
portion. A parity or junior lien position in the guaranteed loan
collateral may be considered on a case-by-case basis and must be
approved by the Agency. The minimum security taken for the purchase of
cooperative stock includes a lien on the stock acquired with loan
funds, an assignment of any patronage refund and personal or corporate
guarantees.
(2) The lender must remain mortgagee and secured party of record
notwithstanding the fact that another party may hold a portion of the
guaranteed loan.
(3) The lender will receive all payments of principal and interest
on account of the entire guaranteed loan and must promptly remit to
each holder and participant, if any, its pro rata share of any payment
within 30 days of the lender's receipt thereof from the borrower.
Holder or participant payments are determined according to their
respective interest in the guaranteed loan, less only the lender's
servicing fee.
(4) Any claim against a loan note guarantee or assignment guarantee
agreement that is attached to, or relating to, a promissory note that
provides for payment of interest-on-interest, default charges, penalty
interest, or late payment fees will be reduced to remove such interest,
fees and charges.
(5) The loan note guarantee is unenforceable by the lender to the
extent that any loss is occasioned by:
(i) The violation of usury laws;
(ii) Use of guaranteed loan funds for unauthorized loan purposes in
accordance with Sec. 5001.122 or to the extent that those funds are
used for purposes other than those specifically approved by the Agency
in its conditional commitment or amendment thereof;
(iii) Failure to obtain, perfect, document, and or maintain the
required collateral or security position regardless of the time at
which the Agency acquires knowledge thereof; and
(iv) Negligent loan origination or negligent loan servicing as
determined and documented by the Agency.
(6) The Agency will guarantee payment as follows:
(i) To any holder, 100 percent of any loss sustained by the holder
on the guaranteed portion of the guaranteed loan it owns and on
interest due (as determined under paragraph (g) of this section) on
such portion less any outstanding servicing fee.
(ii) To the lender: Any loss sustained by the lender on the
guaranteed portion of the guaranteed loan, including principal and
interest (as determined under paragraph (c) of this section) evidenced
by the promissory note(s) or assumption agreements entered into in
[[Page 42564]]
connection with an Agency approved transfer and assumption, and secured
advances for protection and preservation of collateral made with the
Agency's authorization if applicable.
(c) Accrued interest payments. If a loan has been guaranteed by the
Agency prior to October 1, 2020, the Agency will guarantee the lender
and any holders accrued interest in accordance with the applicable
regulations in effect for the respective program at the time the loan
was guaranteed. For all guaranteed loans closed on or after October 1,
2020, the Agency will guarantee accrued interest in accordance with
paragraph (c)(1) or (2), as applicable, of this section.
(1) If the lender owns all or a portion of the guaranteed portion
of the guaranteed loan or makes a protective advance, the Agency, in
its sole discretion, may cover interest on the guaranteed portion for
the 90 days from the most recent delinquency effective date, and up to
a total of 180 days, only if:
(i) The lender, and not the Agency, has repurchased all holder
interests in the guaranteed loan in accordance with Sec. 5001.511;
(ii) The lender is actively engaged in a credit resolution with the
borrower to bring the account current or fully liquidate the collateral
under the terms of a liquidation plan approved by the Agency; and
(iii) Concurrence for inclusion of the extended period of interest
to the lender is received from the Agency.
(2) If the guaranteed loan has one or more holders, the lender will
issue an interest termination letter to each holder establishing the
termination date for interest accrual. The loan note guarantee will not
cover interest to any holder accruing after 90 days from the date of
the interest termination letter. The Agency at its sole discretion may
notify each holder of the interest termination provisions if it is
determined that lender correspondence to holders is in-adequate.
Sec. 5001.451 Conditional commitment.
(a) Issuance. Upon selection of an application in accordance with
Sec. 5001.315 in subpart D, the Agency will issue a conditional
commitment to the lender, to be accepted by the lender and the
borrower, containing conditions under which the Agency will issue a
loan note guarantee.
(1) Upon acceptance of the conditional commitment, the lender
agrees not to modify the scope of the project, overall facility
concept, project purpose, use of guaranteed loan funds, or other terms
and conditions without Agency written concurrence in accordance with
paragraph (c) of this section.
(2) If the lender decides at any time after receiving a conditional
commitment that it no longer wants a loan guarantee, the lender must
immediately advise the Agency of the cancellation in writing. Upon
written notification from the lender, the Agency will de-obligate the
funds associated with the conditional commitment.
(b) Content. The conditional commitment will address information
required for issuing a loan note guarantee, including but not limited
to:
(1) Approved use of guaranteed loan funds (source and use of
funds);
(2) Rates and terms of the loan;
(3) Loan agreement requirements;
(4) Loan closing requirements;
(5) Lender and borrower certifications;
(6) Collateral and lien position requirements; and
(7) Other requirements necessary to protect the Agency.
(c) Change requests. The lender can request, in writing, changes to
the conditional commitment with justification. The Agency can deny,
solely at its discretion, changes to the conditional commitment even if
the changes are otherwise in compliance with this part. All changes to
the conditional commitment must be documented by written amendment to
the conditional commitment executed by all parties.
(d) Acceptance or withdrawal of conditional commitment. The lender
and borrower must complete and sign the conditional commitment and
return a copy to the Agency within 60 days. If the conditional
commitment is not accepted by both the lender and borrower within 60
days, the conditional commitment becomes null and void and the Agency
will withdraw the conditional commitment and de-obligate the associated
funds.
(e) Modification, and expiration of conditional commitment. The
conditional commitment issued by the Agency will be effective for a
period of 1 year or sufficient time to complete the guaranteed loan
project prior to loan closing. The lender must submit a written request
to the Agency to extend the conditional commitment at least 30 days
prior to its expiration date and obtain Agency approval for the
extension. The Agency will consider this request only if no major
changes have been made in the lender's loan conditions and requirements
and no material adverse changes in the borrower or the borrower's
financial condition have occurred since issuance of the conditional
commitment. If a conditional commitment expires, the Agency will notify
the lender in writing and may de-obligate the funds. Any additions or
modifications to conditions stated in the original conditional
commitment must be agreed upon between the lender, the borrower, and
the Agency.
Sec. 5001.452 Loan closing and conditions precedent to issuance of
loan note guarantee.
(a) The lender must not close the guaranteed loan until all
conditions of the conditional commitment are met.
(b) Simultaneously with or immediately after the guaranteed loan
closing, the lender must provide to the Agency the guarantee fee, any
secondary market sale documents, and the following forms and documents:
(1) An Agency-approved, ``Guaranteed Loan Closing Report'';
(2) A copy of each executed promissory note and collateral security
documents;
(3) A copy of the executed final loan agreement, which must include
any additional requirements imposed by the Agency in the conditional
commitment;
(4) The original, executed Agency-approved guarantee form(s) for
any required personal, partnership or corporate guarantees;
(5) The borrower's loan closing balance sheet, if required;
(6) For loans to public bodies, an opinion from recognized bond
counsel regarding the adequacy of the preparation, issuance, and
enforceability of the debt instruments;
(7) Any other documents required to comply with applicable law or
required by this part, the conditional commitment or the Agency; and
(8) When requesting issuance of a loan note guarantee, the lender
must certify to each condition identified in paragraphs (b)(8)(iii)(A)
through (V) of this section, as applicable.
(i) In making its certification, the lender can rely on certain
written materials (e.g., certifications, evaluations, appraisals,
financial statements, and other reports) provided by the borrower or
other qualified third parties (e.g., independent engineers, appraisers,
accountants, attorneys, consultants, or other experts).
(ii) If the lender is unable to provide any of the certifications
required under this section, the lender must provide an explanation
satisfactory to the Agency.
(iii) The lender may request the loan note guarantee prior to
construction in accordance with this part; however, the lender must
still certify to all applicable conditions of this paragraph
(b)(8)(iii).
[[Page 42565]]
(A) All requirements of the conditional commitment have been met.
(B) The financial criteria specified in Sec. 5001.303(b)(4) of
this part and any financial criteria contained in the conditional
commitment were:
(1) Determined in accordance with any applicable requirements in
Sec. 5001.9 of this part, and
(2) Have been maintained through the issuance of the loan note
guarantee. Failure to maintain or attain the minimum financial criteria
will result in the Agency not issuing a loan note guarantee.
(C) No major changes have been made in the applicant, project or
lender's loan conditions and requirements since the issuance of the
conditional commitment, unless such changes have been approved by the
Agency.
(D) There has been neither any material adverse change in the
borrower's financial condition nor any other material adverse change in
the borrower during the period of time from the Agency's issuance of
the conditional commitment to issuance of the loan note guarantee
regardless of the cause or causes of the change and whether or not the
change or causes of the change were within the lender's or borrower's
control.
(1) The borrower is a legal entity in good standing with its
regulator (as applicable) and operating in accordance with the laws of
the State(s) or Tribe where the borrower was organized or has a place
of business.
(2) The borrower meets the eligibility requirements as outlined in
Sec. 5001.126(a) and (b) through (e), as applicable.
(E) There is a reasonable prospect that the guaranteed loan and
other project debt will be repaid on time and in full (including
interest) from project cash flow according to the terms proposed in the
application.
(F) The guaranteed loan has been properly closed, and the required
security instruments have been properly executed and all security
interests obtained by the lender have been or will be properly
perfected in accordance with applicable law.
(G) All planned property acquisition has been or will be completed;
all development has been or will be substantially completed in
accordance with plans and specifications and conforms to applicable
Federal, State, and local codes; all equipment required for the project
is available, can be procured and delivered within the project
development schedule, and will be installed in conformance with
manufacturer's specifications and design requirements; and costs have
not exceeded the amount approved by the lender and the Agency.
(H) The proposed project complies with all current Federal, State,
and local laws and regulatory rules that affect the project, the
borrower, and lender activities, including, but not limited to, equal
opportunity and Fair Housing Act requirements and design and
construction requirements.
(I) Lender-required insurances are in effect.
(J) All truth-in-lending and equal credit opportunity requirements
have been met.
(K) The borrower has marketable title to the collateral then owned
by the borrower, subject to the rights of the guaranteed loan and to
any other exceptions approved in writing by the Agency.
(L) Where required, necessary or prudent, the borrower has
obtained--
(1) A legal opinion relative to the title and accessibility to any
rights-of-way and easements; and
(2) A title opinion or title insurance showing the borrower has
good and marketable title to real property and other collateral and all
mortgages or other lien defects, restrictions, or encumbrances, if any.
(M) All project funds have been or will be disbursed for purposes
and in amounts consistent with the conditional commitment (or Agency-
approved amendment thereof) and the application submitted to the
Agency. Appropriate lender controls were used to ensure that all funds
were properly disbursed, including funds for working capital. A copy of
a settlement statement by the lender detailing the use of loan and
matching/equity funds must be attached to support this certification.
(N) When applicable, the entire amount of the loan for working
capital or initial operating expenses have been disbursed to the
borrower, except in cases where the Agency has approved disbursement
over an extended period of time and funds are escrowed so that the
settlement statement reflects the full amount to be disbursed.
(O) When required, personal and/or corporate guarantees have been
obtained in accordance with Sec. 5001.204 of this part.
(P) Lien priorities are consistent with the requirements of the
conditional commitment. No claims or liens of laborers, subcontractors,
suppliers of machinery and equipment, materialmen, or other parties
have been filed against the collateral and no suits are pending or
threatened that would adversely affect the collateral.
(Q) Neither the lender nor any of the lender's officers has an
ownership interest in the borrower or is an officer or director of the
borrower, and neither the borrower nor its officers, directors,
stockholders, or other owners have more than a 5 percent ownership
interest in the lender.
(R) The loan agreement includes all borrower compliance measures
identified in the Agency's environmental review for avoiding or
reducing adverse environmental impacts of the project's construction or
operation.
(S) The lender will comply with the requirements of the Debt
Collection Improvement Act.
(T) The lender has executed and delivered the lender's agreement,
completed registration in the Agency's electronic reporting system, and
electronically submitted the closing report for the guaranteed loan
along with the appropriate guarantee fee.
(U) For all RES and EEI projects, the lender must provide
certification that the project has been performing at a steady state
operating level in accordance with the technical requirements, plans,
and specifications. Any modification to the 30-day steady state
operating level requirement will be based on the Agency's review of the
technical report or vendor certification and will be incorporated into
the conditional commitment.
(V) For CF and WWD projects, the lender must also certify that the
lender would not make the loan without an Agency loan guarantee.
(c) For RES projects where applicable, the lender must provide to
the Agency a copy of the executed power purchase agreement.
(d)(1) For all CF projects before the Agency will issue a loan note
guarantee on a guaranteed loan to a borrower other than a public body,
the articles of incorporation or other organizing documents of the
borrower or the loan agreement must include a condition similar to the
following:
(2) If the corporation dissolves or ceases to perform the community
facility objectives and functions, the board of directors shall
distribute all business property and assets to one or more nonprofit
corporations or public bodies. This distribution must be approved by 75
percent of the users or members and must serve the public welfare of
the community. The assets may not be distributed to any members,
directors, stockholders, or others having a financial or managerial
interest in the corporation. Nothing herein shall prohibit the
corporation from paying its debts.
(e) For all B&I projects a borrower whose project involves locally
or
[[Page 42566]]
regionally produced agricultural food products and is not located in a
rural area must include in an appropriate agreement with retail and
institutional facilities to which the borrower sells locally or
regionally produced agricultural food products a requirement to inform
consumers of the retail or institutional facilities that the consumers
are purchasing or consuming locally or regionally produced agricultural
food products.
Sec. 5001.453 Issuance of the loan note guarantee.
The Agency, at its sole discretion, will determine if the
conditions specified in the conditional commitment have been met and
whether to issue the loan note guarantee.
(a) Issuance. When the Agency is satisfied that all of the
conditions specified in the conditional commitment have been met and it
receives all the required fees plus the executed lender's agreement
from the lender, the Agency will issue the documents identified in
paragraphs (a)(1) through (3) of this section, as appropriate.
(1) Loan note guarantee. The Agency will provide the lender the
original loan note guarantee document which the lender must attach to
the promissory note. If the lender elected to use the multi-note
system, the Agency will issue an original loan note guarantee for each
promissory note.
(2) Assignment guarantee agreement. If the lender assigns any
guaranteed portion of a guaranteed loan to a holder, the lender,
holder, and the Agency will execute an assignment guarantee agreement
for each assignment.
(3) Certificate of incumbency and signature. The Agency will
provide the lender an executed certificate of incumbency form to verify
the signature and title of the Agency official who signs the loan note
guarantee, lender's agreement, and assignment guarantee agreement.
(b) Agency review of closing. The Agency will review the closing
documents submitted by the lender for completeness and if all
conditions have been met and all documents have been provided, the
Agency will issue the loan note guarantee. If the Agency determines
that it cannot issue the loan note guarantee, the Agency will notify
the lender, in writing, of the reasons and give the lender a reasonable
period within which to satisfy the objections. If the lender satisfies
the objections within the time allowed, the Agency will issue the loan
note guarantee.
(c) Cancellation of obligation. A lender can submit a written
request to the Agency for a partial cancellation. The lender must
include in this request the reason for the partial cancellation, the
effective date, and the portion to be canceled. If the Agency
conditions for issuance of the loan note guarantee are rejected, cannot
be met or funds are, in whole or in part, no longer needed, the Agency
will cancel the obligation.
Sec. 5001.454 Guarantee fee.
The guarantee fee is a one-time, non-refundable fee paid by the
lender to the Agency at or before loan closing and is required to be
paid before the Agency will issue the loan note guarantee. The lender
may pass the guarantee fee on to the borrower.
(a) Guarantee fee calculation. The one-time guarantee fee is
calculated by multiplying the total loan amount by the percentage of
guarantee by the guarantee fee rate, which may vary by program.
(b) Guarantee fee rates. The guarantee fee rate is established by
the Agency in an annual document published in the Federal Register.
While the fee rate may vary annually, they will not exceed the limits
in table 1:
Table 1 to Sec. 5001.454(b)--Guarantee Fee
------------------------------------------------------------------------
Maximum
guarantee fee
(percent)
------------------------------------------------------------------------
Community Facilities.................................... 4
Water and Waste Disposal................................ 3
Business and Industry................................... 5
Rural Energy for America Program........................ 3
------------------------------------------------------------------------
(c) Loan note guarantee prior to completion. If the loan note
guarantee is issued prior to completion of the project's construction
under Sec. 5001.205(e)(2), an additional guarantee fee of 0.50 percent
will be added. This additional 0.50 percent fee may not be passed on to
the borrower.
(d) Reduced fee. Subject to annual limits set by the Agency and
published in an annual Federal Register document, the Agency may charge
a reduced guarantee fee if requested by the lender when the borrower's
project meets any one of the following criteria:
(1) Is located in a rural community that--
(i) Is a distressed community in accordance with the Economic
Innovation Group distressed community index. The list can be found on
the Agency's website at: https://www.rd.usda.gov/onerdguarantee;
(ii) Is experiencing long-term population decline according to the
last three decennial censuses;
(iii) Is in a persistent poverty county. A persistent poverty
county is any county that has had 20 percent or more of its population
living in poverty over the past 30 years, as measured by the 1990 and
2000 decennial census and 2007-2011 American Community Survey 5-year
average, or any territory or possession of the United States;
(iv) Is in a presidentially declared disaster area, declared within
the 24 months preceding the date of the application, and is
experiencing trauma as a result of natural disaster;
(v) Is located in a city, county, or state with an unemployment
rate, as determined by the Department of Labor, 125 percent or greater
of the current national rate; or
(vi) Is located within the boundaries of a federally recognized
Indian tribe's reservation or within Tribal trust lands or within land
owned by an Alaska Native Regional or Village Corporation as defined by
the Alaska Native Claims Settlement Act.
(2) Processes, distributes, aggregates, stores, and/or markets
locally or regionally produced agricultural food products and promotes
access to healthy foods;
(3) Is locally owned and managed, and either
(i) Supports value-added agriculture and provides a market for
locally or regionally produced agricultural food product; or
(ii) Produces a natural resource value-added product/manufactures a
product from a natural resource.
(4) Is part of a strategic economic development and community
development plan on a multi-jurisdictional and multi-sectoral basis in
accordance with Section 6401 of the Agricultural Improvement Act of
2018 (Pub. L. 115-334); or
(5) Provides an additional market for existing local businesses by
purchasing substantial amounts of products or services from, selling
product to, or providing services to existing local and regional
businesses.
Sec. 5001.455 Periodic guarantee retention fee.
The Agency will collect a periodic guarantee retention fee from the
lender for as long as the loan note guarantee is outstanding in
accordance with the annual notice published in the Federal Register in
accordance with Sec. 5001.10. Payment of the periodic guarantee
retention fee is required to maintain the validity of the loan note
guarantee. The lender may pass the fee on to the borrower but may not
delay payment of the fee to the Agency while collecting the payment
from the borrower. The fee
[[Page 42567]]
rates may differ by program as published annually in a document in the
Federal Register in accordance with Sec. 5001.10. The annual Federal
Register notification will include the frequency of payment for the
fees.
(a) Calculation. The guarantee retention fee is calculated by
multiplying the full outstanding principal guaranteed loan balance as
of a date(s) as published in the annual Federal Register notification,
by the percentage of guarantee, by the fee rate as noted in the
guaranteed loan conditional commitment.
(b) Effective fee rate. The effective guarantee retention fee rate
that is published in a Federal Register document in accordance with
Sec. 5001.10 at the time the guaranteed loan is obligated will be
noted in the guarantee loan conditional commitment and the fee will
remain in effect for the life of the loan note guarantee.
(c) Payments. The guarantee retention fee payment frequency and
related due date provisions will be published in the annual Federal
Register notification.
(1) Guarantee retention fee payments not received within 60 days
after their due date are considered delinquent and, at the Agency's
discretion, may result in cancellation of the loan note guarantee to
the lender. The Agency will provide the lender 30 calendar days'
written notice that the fee is delinquent before canceling the loan
note guarantee. Holders' rights will continue in effect as specified in
the loan note guarantee and assignment guarantee agreement, unless the
holder took possession of an interest in the loan note guarantee
knowing guarantee retention fees had not been paid.
(2) Until the loan note guarantee is canceled by the Agency, any
delinquent periodic guarantee retention fee will bear interest at the
promissory note rate.
(3) When the Agency repurchases 100 percent of the guaranteed
portion of the guaranteed loan as prescribed in Sec. 5001.511(c), the
Agency will discontinue collection of the periodic guarantee retention
fee.
(d) Secondary market prohibition. Lenders are prohibited from
selling any portion of the guaranteed loan on the secondary market if
there are unpaid periodic guarantee retention fees.
Sec. 5001.456 Other fees.
The Agency has the authority and may at its discretion charge
additional fees in order to maintain adequate levels of program
funding. Prior to the Agency charging any additional fees, the Agency
will publish a notice of those fees in the Federal Register in
accordance with Sec. 5001.10. All fees will be disclosed in the
conditional commitment specific to the project as issued to the lender
at the time approval.
(a) Until the loan note guarantee is canceled by the Agency, any
delinquent fees will bear interest at the promissory note rate.
(b) Lenders are prohibited from selling any portion of the
guaranteed loan on the secondary market if there are unpaid fees.
Sec. 5001.457 Changes prior to loan closing.
(a) Change in borrower prior to closing. Any change in borrower
ownership or organization prior to the issuance of the loan note
guarantee must meet the applicable guaranteed program's eligibility
requirements and must be approved by the Agency.
(b) Transfer to new lender prior to issuance of the loan note
guarantee. Prior to issuance of the loan note guarantee, a lender can
request a transfer of an outstanding conditional commitment to a new
lender by providing the Agency with a letter from the lender, the
borrower, and the proposed new lender. The request must include the
reason(s) the current lender no longer desires to be the lender for the
project.
(1) The Agency may approve the transfer from the current lender to
the proposed new lender provided the new proposed lender is an eligible
lender (see paragraph (b)(2) of this section) and no material adverse
changes have occurred in the:
(i) Ownership, control or legal structure of the borrower; and
(ii) Borrower's written plan, scope of work, or the purpose or
intent of the Project.
(2) The Agency will determine if the proposed new lender is
eligible in accordance with Sec. 5001.130 of this part prior to
approving the transfer of lender. The new lender must execute a new
application form and a lender's agreement (unless the new lender
already has a valid lender's agreement with the Agency) and must
complete a new credit evaluation in accordance with Sec. 5001.202 of
this part. The Agency may require the new lender to provide other
updated application items as specified by the Agency.
(3) If the Agency approves the transfer to the new lender, the
Agency will issue a letter of amendment to the original conditional
commitment reflecting the new lender who must acknowledge acceptance of
the amended conditional commitment in writing.
Sec. 5001.458 Other Federal, State, and local requirements.
Beginning on the date of issuance of the loan note guarantee,
lenders and borrowers must--
(a) Coordinate with all appropriate Federal, State, local and
Tribal agencies that may have jurisdiction or involvement in each
project; and
(b) Comply with all current Federal, State, local, and Tribal laws
and rules, as well as applicable regulatory commission rules, that
affect the project, the borrower, or lender. Compliance activities
include, but are not limited to--
(1) Organization and borrower's authority to design, construct,
develop, operate, and maintain the proposed facilities;
(2) Borrowing money, giving security, and raising revenues for
repayment;
(3) Land use zoning;
(4) Health, safety, and sanitation standards as well as design and
installation standards; and
(5) Protection of the environment and consumer affairs.
Sec. 5001.459 Replacement of loan note guarantee and assignment
guarantee agreement.
If a loan note guarantee or assignment guarantee agreement has been
lost, stolen, destroyed, mutilated, or defaced while in the custody of
the lender or holder, the Agency may issue a replacement to the lender
or holder, as applicable under the conditions described in paragraphs
(a) through (c) of this section. The lender is prohibited from altering
or modifying or approving any alterations to or modifications of any
loan documents without the prior written approval of the Agency.
(a) Replacement requirements. The lender must coordinate the
activities of the party who seeks the replacement documents and must
submit the required documents to the Agency for processing. The
requirements for replacement are as follows:
(1) A written statement of loss which includes:
(i) Legal name and present address of either the lender or the
holder who is requesting the replacement forms;
(ii) Legal name and address of the lender of record;
(iii) Capacity of person certifying;
(iv) Full identification of the loan note guarantee or assignment
guarantee agreement including the name of the borrower, the Agency's
case number, date of the loan note guarantee or assignment guarantee
agreement, face amount of the promissory note in which an interest was
purchased, date of the promissory note, present balance of the
[[Page 42568]]
guaranteed loan, percentage of guarantee, and, if an assignment
guarantee agreement, the original named holder and the percentage of
the guaranteed portion of the guaranteed loan assigned to that holder.
Any existing parts of the document to be replaced must be attached to
the certificate;
(v) A full statement of circumstances of the loss, theft,
destruction, defacement, or mutilation of the loan note guarantee or
assignment guarantee agreement; and
(vi) For the holder, evidence demonstrating current ownership of
the assignment guarantee agreement. If the present holder is not the
same as the original holder, the lender must include a copy of the
endorsement of each successive holder in the chain of transfer from the
initial holder to present holder. If copies of the endorsement cannot
be obtained, the lender must submit the best available records of
transfer (e.g., order confirmation, canceled checks, etc.).
(b) Indemnity bond. An indemnity bond acceptable to the Agency must
accompany the request for replacement except when the holder is the
United States, a Federal Reserve Bank, a Federal Government
corporation, a State or territory, the District of Columbia or a
federally recognized tribal entity. The indemnity bond must:
(1) Be issued by a qualified surety company holding a certificate
of authority from the Secretary of the Treasury and listed in Treasury
Department Circular 570, except when the outstanding principal balance
and accrued Interest due the present holder, in accordance with Sec.
5001.450(c), is less than $1 million as verified by the lender via a
written letter of certification of balance due;
(2) Be issued and payable to the United States of America acting
through the Agency;
(3) Be in an amount not less than the unpaid principal and
interest; and
(4) Hold the Agency harmless against any claim or demand that might
arise or against any damage, loss, costs, or expenses that might be
sustained or incurred by reason of the loss or replacement of the
instruments.
(c) Multi-note system. Where the guaranteed loan was closed under
the provisions of the multi-note system, the Agency will not attempt to
obtain, or participate in the obtaining of, replacement promissory
notes from the borrower. The holder is responsible for bearing the
costs of promissory note replacement if the borrower agrees to issue a
replacement instrument. When the promissory note is replaced, its terms
cannot be changed. If the promissory note has been lost, stolen,
destroyed, mutilated or defaced, such promissory note must be replaced
before the Agency will replace any instruments.
Sec. Sec. 5001.460-5001.500 [Reserved]
Subpart F--Servicing Provisions
Sec. 5001.501 General.
The lender is responsible for servicing the entire loan and taking
all servicing actions that a reasonably prudent lender would perform in
servicing its own portfolio of loans that are not guaranteed. The
lender must certify that it will service the guaranteed loan in
accordance with this part, its loan servicing policies and procedures,
and the lender's agreement. Where a lender's loan servicing policies
and procedures address a corresponding requirement in this part or in
the lender's agreement, the lender must comply the corresponding
requirement in this part, unless otherwise approved by the Agency.
(a) A lender's servicing responsibilities include, but are not
limited to,
(1) Periodic borrower visits;
(2) Distribution of guaranteed loan funds;
(3) Collecting payments on guaranteed loans;
(4) Ensuring compliance with the covenants and provisions in the
loan agreement, security instruments, and other supplemental agreements
relating to the guaranteed loan;
(5) Obtaining and analyzing financial statements;
(6) Ensuring payment of taxes and insurance premiums;
(7) Maintaining liens and lien priority on collateral;
(8) Keeping an inventory of all collateral items, and reconciling
the inventory of all collateral sold during guaranteed loan servicing,
including liquidation;
(9) Obtaining Agency approvals or concurrence as required; and
(10) Cooperating fully with all oversight and monitoring efforts of
the Agency or its representatives as specified in Sec. 5001.502.
(b) The lender must remain mortgagee and secured party of record,
notwithstanding the fact that another party may hold a portion of the
loan.
(c) The lender must ensure that the borrower has obtained and will
maintain all necessary insurance coverage appropriate to the proposed
project.
(d) If the Agency determines that the lender is not in compliance
with its servicing responsibilities, the Agency reserves the right to
take any action the Agency determines necessary to protect the Agency's
interests with respect to the guaranteed loan. If the Agency exercises
this right, the lender must cooperate with the Agency to rectify the
situation.
Sec. 5001.502 Oversight and monitoring.
The Agency will employ various oversight and monitoring activities
in order to ensure compliance with this part. All lenders involved in
any manner with any loan note guarantee issued under this part or under
a loan note guaranteed previously issued under a guaranteed loan
program identified in Sec. 5001.1 of this part must cooperate fully
with the Agency in its oversight and monitoring efforts, including, but
not necessarily limited to, those identified in paragraphs (a) through
(c) of this section.
(a) Reports and notifications. Lenders must submit to the Agency
reports and notifications as required by this part. To facilitate the
Agency's oversight and monitoring including, but not necessarily
limited to, those identified in paragraphs (a)(1) through (4), as
applicable, of this section.
(1) Status reports. No less than semi-annual status reports as of
June 30 and December 31 each year (unless more frequent reports are
needed as determined by the Agency to protect the financial interests
of the government) regarding the condition of the lender's guaranteed
loan portfolio (including borrower status and loan classification) and
any material change in the general financial condition of any borrower
since the last report was submitted. The lender must submit these
reports within 30 calendar days after the reporting period, using the
appropriate Agency online reporting system.
(2) Default reports. Monthly default reports for each guaranteed
loan in monetary default using the appropriate Agency online reporting
system are due on the 15th working day of each month.
(3) Notifications. The lender(s) must notify the Agency by written
notification within 15 calendar days of any:
(i) Loan agreement violation by any borrower, including when the
borrower is 30 days past due or is otherwise in default of the
covenants in the loan agreement;
(ii) Permanent or temporary reduction in the interest rate;
(iii) Downgrade in the lender's loan classification of any
guaranteed loan; and
(iv) Protective advances in accordance with Sec. 5001.516.
[[Page 42569]]
(4) Collection activities report. If a lender is liquidating the
assets of a borrower, the lender must also evaluate and provide a
report of collection activities regarding the collectability of
personal and corporate guarantees.
(b) Records--(1) Lenders. Upon request by the Agency, the lender
must permit representatives of the Agency (or other authorized persons)
to inspect and make copies of any of the records of the lender
pertaining to each guaranteed loan issued under this part or previously
issued under one of the programs identified in Sec. 5001.1 of this
part. Such inspection and copying may be made during regular office
hours of the lender or at any other time the lender and the Agency
agree upon.
(2) Borrowers. Except as provided by law, upon request by the
Agency, the borrower must permit representatives of the lender (or
other authorized persons) to inspect and make copies of any of the
records relating to the borrower's project. Such inspection and copying
may be made during regular office hours of the borrower or at any other
time agreed upon between the borrower and the lender.
(c) Agency and lender conference. When requested by the Agency, the
lender must consult with the Agency to ascertain how the guaranteed
loan is being serviced and that the conditions and covenants of the
loan agreement are being enforced.
(d) Access to the project. Until the loan note guarantee is
terminated, the borrower must allow the lender and therefore the Agency
access to the project and its performance information and permit
periodic inspections of the project by an authorized representative of
the Lender or the Agency.
Sec. 5001.503 REAP RES or EEI project completion requirements.
Once a REAP RES or EEI project has been completed, the lender or
borrower is required to submit the applicable project performance
report as identified in paragraphs (a) and (b) of this section by
January 31 each year.
(a) Renewable energy systems. For RES projects, commencing the
first full calendar year following the year in which project
construction was completed and continuing for three full years, the
borrower must provide an outcome project performance certification
noting that either the system has or has not performed at the steady
state operating level as described in the technical report filed with
the REAP guaranteed loan application, and whether projected jobs
created or saved have occurred. If it has not performed as intended, a
report detailing the circumstances affecting performance must be
provided to the Agency along with the actual energy production of the
system (in BTUs, kilowatt-hours, or similar energy equivalents) and the
actual number of jobs created or saved as a direct result of the RES
project for which guaranteed loan funds were used.
(b) Energy efficiency improvements. For EEI projects, commencing
the first full calendar year following the year in which project
construction was completed and continuing for two full years, the
borrower must provide an outcome project performance certification
noting that either the energy efficiency improvements have or have not
been utilized at or above the projected operating levels as described
in the technical report filed with the REAP guaranteed loan
application, and whether projected jobs created or saved have occurred.
If it has not performed as intended, a report detailing the
circumstances affecting performance must be provided to the Agency
along with the actual energy savings of the system and the actual
number of jobs created or saved as a direct result of the EEI project
for which guaranteed loan funds were used.
Sec. 5001.504 Financial reports.
(a) The lender must obtain the borrower's and any guarantor's
financial statements required by this part and the loan agreement. The
Agency may require an annual audited financial statement based on a
project's circumstances. States, local government, Indian tribes,
institution of higher education, and nonprofit organization borrowers
who meet the Federal awards expended threshold established in 2 CFR
part 200, subpart F, ``Audit Requirements,'' during their fiscal year
must submit an audit conducted in accordance with 2 CFR part 200,
subpart F.
(b) The lender must submit financial statements obtained under this
section to the Agency within 120 days of the end of the borrower's
fiscal year. When the borrower's audit is conducted in accordance with
2 CFR part 200, subpart F, audits must be submitted no later than nine
months after the end of the borrower's fiscal year or 30 days after the
borrower's receipt of the auditor's report, whichever is earlier. If a
lender makes reasonable documented attempts to obtain financial
statements but is unable to obtain the borrower's (or guarantor's)
cooperation, the failure to obtain financial statements does not impair
the validity of the loan note guarantee.
(c) Annual financial statements must be in accordance with
accounting practices acceptable to the Agency as prescribed in Sec.
5001.9 for all borrowers with a guaranteed loan balance in excess of
$600,000. The lender may determine the type and frequency of financial
statements for borrowers with a total guaranteed loan balance below
$600,000 upon notification and justification to the Agency. This
section does not supersede the borrower financial statement
requirements of 2 CFR part 200, subpart F.
(d) The lender must analyze the financial statements obtained under
paragraph (a) of this section and provide the Agency with a financial
analysis including a credit evaluation of trends, strength and
weaknesses, ratio analysis, and conclusions, plus any extraordinary
transactions; borrower violations of loan covenants and covenant
waivers proposed by the lender, any routine servicing actions
performed; and other indications of the financial condition of the
borrower.
(e) Following the Agency's review of the lender's financial
analysis, the Agency will notify the lender in writing of any concerns.
The lender must address each concern identified in the Agency's
findings by the due date stated in the correspondence.
(f) The lender should routinely confirm the outstanding principal
balance of a guarantee held by a holder to avoid any discrepancy and
delay in reconciliation in the event of a lender or Agency repurchase
of the guaranteed loan from a holder in accordance with Sec. 5001.511.
Sec. 5001.505 Collateral inspection and release.
(a) Inspection of collateral. The lender must inspect the
collateral as often as necessary to properly service the guaranteed
Loan.
(b) Release of collateral. The lender must provide written
justification for the release and obtain Agency approval before
releasing any collateral. The lender is not required to provide
justification for the release of collateral when the loan is not in
default or liquidation and the collateral being released is a working
asset, such as accounts receivable, inventory, and work-in-progress,
that are routinely depleted or sold and proceeds used for the normal
course of business operations.
(1) Exceptions to prior approval. Lenders are not required to
obtain Agency approval prior to releasing collateral when the
collateral sale proceeds are used to pay down debt in order of lien
priority, pay down the guaranteed loan principal, or to acquire
replacement collateral.
[[Page 42570]]
(2) Appraisals. Current appraisals are required on all transactions
pursuant to the requirements of Sec. 5001.203 of this part.
(3) Sale or release transaction. The sale or release of collateral
must be based on an arm's length transaction, unless otherwise approved
by the Agency in writing. There must be adequate consideration at
market value for the release of collateral. Such consideration may
include, but is not limited to:
(i) Application of the net proceeds from the sale of collateral to
the borrower's debts in order of their lien priority against the sold
collateral;
(ii) Use of the net proceeds from the sale of collateral to
purchase other collateral of equal or greater value which the lender
will obtain as security for the benefit of the guaranteed loan with a
lien position equal or superior to the position previously held;
(iii) Application of the net proceeds from the sale of collateral
to the borrower's guaranteed loan or to its business operation in such
a manner that a significant improvement to the borrower's debt service
ability will be clearly demonstrated. The Lender's written request must
detail how the borrower's debt service ability will be improved; and
(4) No adverse impact. Any release of collateral must not
materially cause an adverse effect to the project's operation or
financial condition and the remaining collateral must be sufficient to
provide for adequate collateral coverage. Such assurance must be
supported by written documentation from the lender and be acceptable to
the Agency. If the Agency determines that the project may be adversely
affected by a release of collateral, the Agency may, at its discretion,
require an appraisal on the remaining collateral in accordance with
Sec. 5001.203 of this part.
Sec. 5001.506 Loan transfers and assumptions.
(a) General. A lender must obtain prior written Agency approval in
accordance with paragraph (c) of this section before the lender
conducts a transfer and assumption of a guaranteed loan. The transferee
will assume a loan amount at least equal to the outstanding loan
balance or the present market value of the collateral, whichever is
less. If the transferor is to receive a payment for their equity, the
total debt must be assumed. The following conditions must be met:
(1) All transfers and assumptions will have a fee as provided by
Sec. 5001.509(b).
(2) For each transfer and assumption, the lender must concur in
plans for the disposition of funds, if any, in the transferor's debt
service, operations and maintenance, or other reserve accounts.
(3) The lender must confirm that the transfer and assumption can be
completed in accordance with applicable laws.
(4) The lender must confirm that the conveyance instruments will be
filed, registered, and recorded as appropriate and legally permissible.
The transfer and assumption must be made on the Lender's form of
assumption agreement and contain the Agency case number of the
transferor and transferee. The lender must provide the Agency with a
copy of the assumption agreement.
(5) The lender may request a transfer and assumption when the total
indebtedness, or less than the total indebtedness, of the guaranteed
loan is assumed by another borrower. If the assumption is for less than
the total indebtedness, the transfer and assumption must be an arm's
length transaction and the transfer must be of all loan collateral.
(6) In the event of default of the guaranteed loan, a transfer and
assumption of the borrower's operation and guaranteed loan can be
accomplished before or after the loan goes into liquidation. However,
if the collateral has been purchased through foreclosure or the
borrower has conveyed title to the lender, no transfer and assumption
is permitted.
(7) No transfer and assumption is permitted when the Agency has
repurchased any guaranteed portion of the guaranteed portion of the
loan.
(8) If the transfer is for less than the total indebtedness, the
pro rata share of an eligible loss will be paid to the lender after
execution of the transfer and assumption documents.
(b) Documentation. The lender will provide to the Agency
documentation to support the transferee's status as an eligible
borrower, and such other documentation as the Agency may request to
determine eligibility and credit evaluation.
(1) The new borrower must sign an Agency-approved application form.
(2) The Agency will require personal and/or corporate guarantee(s)
in accordance with Sec. 5001.204 of this part, as applicable. Any
required new personal, partnership or corporate guarantors of the
transferred guaranteed loan must sign an Agency approved guarantee
form.
(c) Agency approval. The Agency will only approve a transfer and
assumption if the transferee will continue the eligible purpose of the
guaranteed loan and such transfer and assumption complies with the
conditions specified in paragraphs (c)(1) through (3) of this section,
as applicable.
(1) Whenever the transferor and transferee are affiliates or
related parties, the transfer and assumption must:
(i) Be to an eligible borrower to continue the project for eligible
purposes;
(ii) Transfer all the loan collateral; and
(iii) Be for the full amount of the guaranteed loan indebtedness.
(2) A transfer and assumption may be approved when the present
borrower is unable or unwilling to accomplish the objectives of the
guaranteed loan, and the transfer will be in the best financial
interest of the borrower and the Agency.
(3) The Agency prefers to transfer to an eligible borrower subject
to the policies and procedures governing the type of guaranteed loan
being made, however the Agency will consider approving a transfer of a
guaranteed loan to an ineligible borrower only if:
(i) The sale price is greater than it would be if the transfer was
to an eligible borrower;
(ii) The transfer to an ineligible borrower is needed as a method
for servicing a problem case; or
(iii) When an eligible borrower is not available. All transfers to
an ineligible borrower must meet the following requirements:
(A) Transfer fees will be collected, and payments applied, in
accordance with Sec. 5001.509(b);
(B) The ineligible borrower agrees to pay the loan balance within
the remaining term of the original guaranteed loan in periodic
installments that will not result in a balloon payment at the loan's
maturity;
(C) Interest rates are at the rate specified in the promissory note
of the transferor or at rates customarily charged borrowers in similar
circumstances in the ordinary course of business. The rates can be
either fixed or variable, and are subject to Agency review and
approval;
(D) The ineligible borrower must have the legal authority to enter
into the contract and have the ability to repay the loan, as determined
by the lender and the Agency. The ineligible borrower must submit a
current balance sheet to the lender. The lender must obtain and analyze
the credit history of the ineligible borrower.
(d) Release of liability. The transferor, including any guarantor,
can be released from liability only with prior Agency written approval
when the transfer and assumption is for the full outstanding balance of
the guaranteed loan. If the assumption is for less than the full
[[Page 42571]]
amount of the loan and the Agency pays a loss to the lender, the
transferor, including any guarantor, are specifically subject to the
Debt Collection Improvement Act provisions unless other workout
arrangements have been made.
(e) Loan agreement. A new loan agreement or an assumption
agreement, acceptable to the Agency must be executed to establish the
terms and conditions of the loan being assumed
(f) Changes in loan terms. When a transfer or assumption is made to
an eligible borrower continuing the project for eligible purposes, the
loan terms may remain the same or may be changed whether the transfer
is for the total indebtedness or less than the total indebtedness. If
the loan terms are to be changed, the lender must submit a request in
accordance with this paragraph (f). The changed loan terms must be
concurred to by the Agency, all holders, and the transferee (including
guarantors). If there are changes in loan terms, the lender's request
will require the following:
(1) An explanation of the reasons for the proposed change in the
loan terms, and
(2) Certification that the lien position securing the guaranteed
loan will be maintained or improved, and proper insurances will
continue to be in effect.
(g) Loan note guarantee. The lender is responsible for noting each
transfer and assumption on all originals of the loan note guarantee.
(h) Proceeds. Before the transfer and assumption is closed, the
lender must credit any proceeds received from the sale of collateral to
the transferor's guaranteed loan debt in order of lien priority.
(i) Additional loans. Guaranteed loans may be used to provide
additional funds in connection with a transfer and assumption. The
Agency will consider approving a guaranteed loan to provide additional
funds in connection with a transfer and assumption pursuant to the
lender's submission of a complete application in accordance with 7 CFR
part 5001, subpart D.
(j) Credit quality. The lender must make a complete credit
evaluation in accordance with Sec. 5001.202 of this part to determine
viability of the project (subject to the Agency review and approval)
including any requirement for deposits in an escrow account as security
to meet the applicable equity requirements for the project.
(k) Appraisals. If the proposed Transfer and Assumption is for less
than the full amount of the guaranteed loan, an appraisal is required
on all the collateral being transferred, and the amount of the
assumption must not be less than this appraised value. The lender is
responsible for obtaining the appraisal, which must conform to the
requirements of Sec. 5001.203 of this part. However, if the original
appraisal is more than one year old, but less than two years old, the
lender may provide an appraisal with a new effective date of evaluation
in lieu of a completely new appraisal.
(l) Legal opinion. Prior to Agency approval, the lender must
provide the Agency a preliminary written legal opinion that the
guaranteed loan can be properly and legally transferred and assurance
that the conveyance instruments will be appropriately filed,
registered, and recorded. Upon execution of the transfer and
assumption, the lender must provide the Agency with a final legal
opinion that the assumption is completed, valid, and enforceable, and
the assumption is consistent with the conditions outlined in the
Agency's conditions of approval for the transfer and complies with all
Agency regulations.
(m) Promissory notes. The lender must not issue any new promissory
notes, release any mortgages and/or deeds of trust on the existing debt
being transferred. An allonge may be attached to existing promissory
notes as needed.
(n) Loss/repurchase resulting from transfer and assumption. (1) Any
resulting loss must be processed in accordance with Sec. 5001.521.
(2) If a holder owns any of the guaranteed portion of the loan,
such portion must be repurchased by the lender or the Agency in
accordance with Sec. 5001.511.
(o) Cash down payment. The lender may allow the transferee to make
cash down payments directly to the transferor provided:
(1) The transfer and assumption are made for the total indebtedness
to an eligible borrower to continue the project for eligible purposes;
(2) The lender recommends that the cash be released, and the Agency
concurs prior to the assumption being completed. The lender can require
that an amount be retained for a defined period of time as a reserve
against future defaults. Interest on such account may be paid
periodically to the transferor or transferee as agreed; and
(3) The lender determines that the transferee has the repayment
ability to meet the obligations of the assumed guaranteed loan as well
as any other indebtedness.
(p) Change in control of borrower. The Agency will deem that a
transfer and assumption has occurred whenever there is a significant
change in the control of the borrower.
Sec. 5001.507 Lender transfer.
(a) After the issuance of a loan note guarantee, a lender may sell
or transfer the entire loan to a new lender with prior written approval
of the Agency. The Agency may approve the sale or transfer to a new
lender if the following conditions are met. The new lender:
(1) Is an eligible lender in accordance with Sec. 5001.130 of this
part and is approved as such;
(2) Is able to service the loan in accordance with the original
loan documents;
(3) Agrees in writing to acquire title to the unguaranteed portion
of the loan held by the original Lender and assumes all original loan
requirements, including liabilities and servicing responsibilities; and
(4) The transfer to the new lender is requested in writing by the
borrower, the proposed new lender, and the original lender of record,
if still in existence.
(b) Upon Agency approval, the original lender must transfer to the
new lender the:
(1) Original promissory note and loan security documents;
(2) Original loan note guarantee;
(3) Original personal and corporate guarantee(s);
(4) Loan payment history; and
(v) The new lender must agree to accept the current loan terms,
including the interest rate, secondary market holder (if any),
collateral, loan agreement terms, and guarantors. The new lender can
modify the loan terms after acquisition only by submitting a written
request to the Agency and receiving Agency approval.
(vi) The new lender must certify to the Agency that the loan
transfer has been completed in accordance with applicable laws and all
provisions of the original loan remain in full force and effect.
(c) The Agency will not pay any loss or share in any costs (e.g.,
legal fees, appraisal fees and environmental assessments) for a
voluntary transfer of lender. This includes situations where a lender
is merged with or acquired by another lender and situations where the
lender has failed and been taken over by a Federal regulatory agency
such as the Federal Deposit Insurance Corporation (FDIC) and the loan
is subsequently sold to another lender. However, in situations where
the lender has failed and been taken over by a Federal regulator and
the loan is liquidated rather than being sold to another lender, the
Agency will pay losses and share in
[[Page 42572]]
costs as if the Federal regulatory agency were an approved new lender.
(d) In cases when there is a transfer to a new lender or when a
lender has been merged with or acquired by another Lender, the Agency
and the new lender must execute a new lender's agreement, unless the
new lender already has a valid lender's agreement with the Agency.
(e) After Agency approval of a transfer of lender, all terms of the
original loan note guarantee shall transfer to the benefit of the new
lender.
Sec. 5001.508 Mergers.
Agency approval. All borrower mergers or consolidations (herein
referred to as ``mergers'') require approval by the Agency and the
lender. The Agency may approve a merger when--
(a) The resulting organization will be eligible for a guaranteed
loan and assumes all the liabilities and acquires all the assets of the
merged borrower;
(b) The merger is in the best interest of the government and the
merging organization;
(c) The resulting organization can meet all required conditions as
contained in specific loan agreements; and
(d) All property can be legally transferred to the resulting
organization.
Sec. 5001.509 Servicing fees.
The lender may pass the servicing fees on to the borrower but may
not delay payment of the fee to the Agency while collecting the payment
from the borrower.
(a) Guarantee retention fees. Where the lender is required to pay a
periodic guarantee retention fee (see Sec. 5001.455), the fee is due
for the entire payment period even if the loan note guarantee is
terminated or transferred before the next retention fee payment is due.
(b) Borrower transfer fee. The Agency will charge the following
fees:
(1) A one-time, $1,500 nonrefundable transfer fee at the time of
transfer to an eligible borrower.
(2) Payment of a one-time nonrefundable transfer fee of 1 percent
of the guaranteed loan balance to ineligible borrowers.
Sec. 5001.510 Subordination of lien position.
(a) Request for subordination. A lender seeking a subordination of
its lien position in collateral must submit a written request to the
Agency. The lender must include in the request a financial analysis of
the servicing action. The financial analysis must be fully supported by
current financial statements, less than 90 calendar days old, of the
borrower and guarantors. The lender must receive written Agency
approval prior to the subordination.
(b) Agency approval. Agency approval of the subordination request
requires that:
(1) The subordination of the lender's lien position enhances the
borrower's business and is in the best financial interest of the
Agency;
(2) The lien to which the guaranteed loan is subordinated is for a
fixed dollar amount or fixed credit limit and for a fixed term, after
which the guaranteed loan lien priority will be restored;
(3) Remaining collateral is sufficient to provide for adequate
collateral coverage of the guaranteed loan. The Agency may require a
current independent appraisal in accordance with Sec. 5001.203 of this
part. However, if the original appraisal is more than one year old, but
less than two years old, the lender may provide an appraisal with a new
effective date of evaluation in lieu of a completely new appraisal;
(4) Lien priorities remain for the portion of the loan collateral
that was not subordinated;
(5) The subordination of collateral to a line of credit does not
extend beyond the term of the line of credit and in no event exceeds
more than three years.
(6) Subordination to a tax-exempt obligation is strictly prohibited
in compliance with OMB Circular A-129, ``Policies for Federal Credit
Programs and Non-Tax Receivables.''
Sec. 5001.511 Repurchases from holders.
(a) General. A holder can make written demand on either the lender
or the Agency to repurchase the unpaid guarantee portion of the loan
when the borrower is in monetary default or when the lender has failed
to pay the holder its pro-rata share of any payment made by the
borrower within 30 days of the lender's receipt thereof from the
borrower. When making written demand on the lender, the holder must
concurrently send a copy of the demand letter to the Agency.
(1) The lender is encouraged to repurchase the guarantee to
facilitate the accounting of funds, resolve any loan problem, and
resolve the monetary default, where and when reasonable. The benefit to
the lender is that it may re-sell the guaranteed portion of the loan
and then continue collection of its servicing fee, if any, when the
monetary default is cured.
(2) When the lender and the Agency determine that repurchase is
necessary to adequately service the loan, the holder must sell the
guaranteed portion to the requesting entity.
(3) If the lender does not repurchase the guaranteed portion from
the holder, the Agency may, at its option, purchase such guaranteed
portion of the loan for servicing purposes.
(4) If a repurchase of a guaranteed loan includes the
capitalization of interest, interest accrued on the capitalized
interest will not be paid to the holder.
(b) Repurchase by lender. If the lender, borrower, and holder are
unable to agree to restructuring of loan repayment, interest rate, or
loan terms to resolve any loan problem or resolve any default, and
repurchase of the guaranteed portion of the loan is necessary to
adequately service the loan, the holder must sell the guaranteed
portion of the loan to the lender. The sale must be for an amount equal
to the unpaid principal and accrued Interest, in accordance with Sec.
5001.450(c) of this part, on such portion less the lender's servicing
fee.
(1) When a lender receives a written demand for repurchase from a
holder, the lender must notify any other holder and the Agency within
30 calendar days of receipt of the written demand. The lender must
inform all parties if the lender will repurchase the unpaid guaranteed
portion of the loan from the requesting holder.
(2) When the lender repurchases the unpaid guaranteed portion from
the holder for servicing purposes, and any default is not cured within
90 calendar days, the lender must discontinue interest accrual.
(3) Upon repurchase the holder will assign the assignment agreement
to the lender without recourse.
(4) The lender must not repurchase from the holder for arbitrage or
other purposes to further its own financial gain.
(5) Any repurchase from a holder may only be made after the lender
obtains the Agency's written approval.
(c) Agency repurchase. A holder can submit a written demand to the
Agency for repurchase only if the lender declines to repurchase. If a
prior written demand was not made upon the lender, the Agency will
notify the lender and allow up to seven calendar days for the lender to
exercise their option to repurchase as provided in this section.
(1) Lender does not repurchase. If the lender does not repurchase
the unpaid guaranteed portion of a loan as provided in paragraph (a) of
this section, the Agency will, within 30 calendar days after written
demand to the Agency from the holder, purchase from the holder the
unpaid principal balance of the guaranteed portion together with
accrued interest to date of repurchase or
[[Page 42573]]
the interest termination date, whichever is sooner, less the lender's
servicing fee. The guarantee will not cover the accrued interest to the
holder on the loan as determined under Sec. 5001.450(c) of this part.
(2) Written demand content. The holder must include in its written
demand to the Agency:
(i) A copy of the written demand made upon the lender;
(ii) A copy of the lender's denial to repurchase the unpaid
guaranteed portion of the guaranteed loan;
(iii) Evidence of the right to require payment from the Agency as
provided by the holder or duly authorized agent. Such evidence must
consist of the original assignment guarantee agreement properly
assigned to the Agency without recourse including all rights, title,
and interest in the loan;
(iv) The amount due including unpaid principal, unpaid interest to
date of demand, and interest subsequently accruing from date of demand
to proposed payment date; and
(v) When the initial holder has sold its interest, the original
assignment guarantee agreement and an original of each Agency-approved
reassignment document in the chain of ownership, with the latest
reassignment being assigned to the Agency without recourse, including
all rights, title, and interest in the guarantee.
(3) Payment. Unless otherwise agreed upon, payment will not be
later than 30 calendar days from the date of demand.
(i) Upon request by the Agency, the lender must promptly furnish
(within 30 calendar days of such request) a current statement,
certified by an appropriate authorized officer of the lender, of the
unpaid principal and interest then owed by the borrower on the loan and
the amount then owed to any holder, along with the information
necessary for the Agency to determine the appropriate amount due the
holder.
(ii) Any discrepancy between the amount claimed by the holder and
the information submitted by the lender must be resolved between the
lender and the holder before payment will be approved. The Agency will
notify both parties and such conflict will suspend the running of the
30-calendar-day payment requirement.
(4) Subrogation. When the Agency purchases a loan from a holder it
assumes all rights that were previously held by the holder.
(5) Servicing fee. When the Agency purchases the guaranteed portion
of the loan from a holder, the lender's servicing fee will stop on the
date that interest was last paid by the borrower. The lender can
neither charge a servicing fee to the Agency nor collect such fee from
the Agency.
(6) Payments and proceeds. The lender must apply all loan payments
and collateral proceeds received to the guaranteed and unguaranteed
portions of the loan on a pro rata basis.
(7) Accrued interest. If Federal or State regulators place the loan
in non-accrual status, the lender must also discontinue interest
accrual. If the Agency repurchases 100 percent of the guaranteed
portion of a loan and becomes the holder, interest accrual on the loan
will cease until the lender resumes remittance of the pro rata payments
to the Agency.
(8) Establishing interest termination date. When a guaranteed loan
has been delinquent more than 60 calendar days and no holder comes
forward or when the lender has accelerated the account, and subject to
the expiration of any forbearance or workout agreement, the lender, or
the Agency at its sole discretion, must issue a letter to the holder(s)
establishing the interest termination date. Accrued interest paid to
the holder(s) will not exceed 90 calendar days and will be calculated
from date when interest was last paid on the loan.
(9) Obligations and rights. Purchase by the Agency neither changes,
alters, or modifies any of the lender's obligations to the Agency
arising from the lender's agreement, guaranteed loan or loan note
guarantee, nor does it waive any of the Agency's rights against the
lender. The Agency will have the right to set-off against the lender
all rights inuring to the Agency as the holder of the instrument
against the Agency's obligation to the lender under the loan note
guarantee.
(10) Accelerated loan. When the lender has accelerated the loan and
the lender holds all or a portion of the guaranteed loan, an estimated
loss claim must be filed by the Lender with the Agency within 60
calendar days from the date the loan was accelerated. Accrued interest
paid to the lender will not exceed 90 calendar days and will be
calculated from date when interest was last paid on the loan.
(11) Interest termination during bankruptcy. When a borrower files
a Chapter 7 liquidation plan, the lender shall immediately notify the
Agency and submit a liquidation plan. The Agency will establish an
interest termination date based on the date Interest was last paid to
the lender. When a borrower files either a Chapter 9 or Chapter 11
bankruptcy restructuring plan, the Agency and lender shall meet to
discuss the bankruptcy procedure, the ability of the borrower to meet
their restructuring plan, the lender's treatment of accruing interest,
and potentially establish an interest termination date for the
guaranteed loan. If the restructuring bankruptcy Chapter 9 or Chapter
11 is converted to a liquidation bankruptcy Chapter 7 by court order,
the interest termination date will be the date of such conversion.
Sec. 5001.512 Additional expenditures and loans.
The lender shall not make additional expenditures on behalf of, or
provide new loans to, the borrower without notification to the Agency
even though such expenditures or loans will not be guaranteed. The
lender shall not approve additional expenditures or new loans where the
expenditure or loan will violate, or cause a violation of, any of the
loan covenants in the borrower's loan agreement.
Sec. 5001.513 Interest rate changes.
(a) Interest rate freezes. The guaranteed loan interest rate will
freeze at the earliest uncured default date and will remain unchanged
until the cancellation of the loan note guarantee in compliance with
Sec. 5001.524.
(b) Reductions. The borrower, lender, and holder (if any) may
collectively initiate a permanent or temporary reduction in the
interest rate of the guaranteed loan at any time during the life of the
loan upon written agreement among these parties. After a permanent
reduction, the loan note guarantee will only cover losses of interest
at the reduced interest rate.
(1) When the Agency is a holder, the lender must obtain Agency
approval before implementing the reduction. The lender must provide a
copy of the modification agreement to the Agency for approval. The
Agency will approve the reduction only when it is demonstrated that the
change is more viable than liquidation and that the government's
financial interests are not adversely affected.
(2) Factors that the Agency will consider in determining whether to
approve the change are the Government's cost of borrowing money; the
monetary recovery is greater than the liquidation recovery; and the
project's continued viability as demonstrated by a financial
feasibility analysis.
(c) Increases. Unless a temporary interest rate reduction occurred,
increases in fixed interest rates and increases in variable interest
rate structure are prohibited.
(d) Fixed rate to variable rate change. Fixed rates can be changed
to variable
[[Page 42574]]
rates to reduce the borrower's interest rate only when the variable
rate has a ceiling that is less than or equal to the original fixed
rate.
(e) Variable rate to fixed rate change. Variable rates can be
changed to a fixed rate that is lower or equal to the current variable
rate.
(f) After adjustments. The interest rates, after adjustments, must
comply with the requirements for interest rates on new loans as
established by paragraph Sec. 5001.401.
(g) Documentation. The lender is responsible for the legal
documentation of interest rate changes by an endorsement or any other
legally effective amendment to the promissory note; however, no new
promissory notes can be issued. The lender must provide copies of all
such documents to the Agency within 10 calendar days of the change.
(3) In a final loss settlement when qualifying interest rate
changes are made in compliance with this part, the lender must
calculate interest based on the periods the given rates were in effect.
The lender must maintain records that adequately document the accrued
interest claimed, which must be determined in accordance with Sec.
5001.450(c).
Sec. 5001.514 Lender failure.
(a) General. In the event a lender fails or ceases to service a
guaranteed loan, the Agency will make the successor lending entity
aware of the statutory and regulatory requirements and will provide
instruction to the successor lending entity on a case-by-case basis.
Such instructions may include the Agency's determination that the
Agency will service the entire loan or the guaranteed portion of the
loan.
(1) Any successor lender must take such action that a reasonable
lender would take if it did not have a loan note guarantee to protect
the lender and Agency's mutual interest.
(2) A successor entity approved by the Agency as a lender will be
afforded the benefits of the loan note guarantee in the sharing of any
loss and eligible expenses subject to the limits that are set forth in
the regulations governing the loan guarantee.
(b) Non-regulated lender. If the successor lending entity is a non-
regulated lender, the lending entity is prohibited from making changes
to the lender's agreement and related documents on the guaranteed loan.
The successor lending entity must comply with the provisions of this
part, including promptly applying to become a lender if not already an
eligible lender. If the successor lending entity is not or fails to
become a lender as set forth in Sec. 5001.130 of this part within 60
calendar days, the loan note guarantee will not be enforceable.
(c) Regulated lender. Where the failed lending entity is an FDIC
regulated lender, the FDIC and the Agency will enter into an Inter-
Agency Agreement regarding the FDIC's role as the successor lending
entity, and all parties are to abide by this agreement or successor
document(s). This agreement sets forth the duties and responsibilities
of each Agency when a lender fails. When the FDIC is not the successor
to a failed regulated lender, the regulatory agency serving as the
successor lending entity and the Agency will abide by terms of the
lender's agreement as executed by the originating lender. The Agency
reserves the right to request a meeting with the successor lending
entity to further define the duties and responsibilities of each agency
when a lender fails.
(d) No successor entity. In the event no successor lending entity
can be determined, the Agency reserves the right to enforce the
provisions of the loan documents on behalf of the lender or to purchase
the lender's interest in the loan.
Sec. 5001.515 Default by borrower.
When there is a default by a borrower, the lender must act
prudently and expeditiously in working with the borrower to bring the
account current or cure the default through restructuring if a
realistic plan can be developed, or to accelerate the account and
conduct a liquidation in accordance with Sec. 5001.517 and in a manner
that will minimize any potential loss.
(a) Default notification and meetings. The lender must notify the
Agency within the timeframe as provided in Sec. 5001.502(a)(3)(i).
(1) The lender will provide this notification by submitting the
guaranteed loan borrower default status report in the Agency's
electronic reporting system. The lender must update the loan's status
each month until such time as the loan is no longer in default.
(2) If a monetary default exceeds 30 calendar days, the lender must
meet with the borrower and, if necessary, the Agency within 45 calendar
days of the date of the default to discuss the situation. The lender
must provide the Agency with a written summary of the meeting,
including any decisions and actions agreed upon within 10 calendar days
of the meeting.
(b) Curative options. In considering curative actions, providing a
permanent cure without adversely affecting the risk to the Agency and
the lender is the paramount objective. The lender may consider
temporary curative actions (e.g., payment deferments or collateral
subordination) provided they strengthen the loan and are in the best
financial interest of the lender and the Agency.
(1) Curative actions (subject to the rights of any holder and
Agency concurrence) include, but are not limited to, the following
options:
(i) Deferment of principal and/or interest payments;
(ii) An additional unguaranteed temporary loan by the lender to
bring the account current;
(iii) Re-amortization of or rescheduling the payments on the loan
excluding capitalization of accrued interest;
(iv) Transfer and assumption of the loan in accordance with Sec.
5001.506;
(v) Reorganization;
(vi) Liquidation;
(vii) Changes in interest rates in accordance with Sec. 5001.513.
Any interest payments must be adjusted proportionately between the
guaranteed and unguaranteed portion of the loan; and
(viii) Troubled debt restructure.
(2) The term of any deferment, rescheduling, re-amortization, or
moratorium cannot exceed the lesser of the remaining useful life of the
collateral or remaining term of the loan as set forth in Sec.
5001.402(b) of this part.
(i) During a period of deferment or moratorium on the guaranteed
loan, the lender's non-guaranteed loan(s) and any stockholder or
affiliate loans must also be under deferment or moratorium.
(ii) Balloon payments are permitted as a loan servicing option as
long as there is a reasonable prospect for successful repayment of the
guaranteed loan and the remaining life of the collateral supports the
action.
(c) Multi-note system. If the loan was closed with the multi-note
system, the lender may need to possess all promissory notes to take
some servicing actions. In situations where the Agency is a holder of
some of the promissory notes, the Agency may endorse the promissory
notes back to the lender, provided the lender provides the Agency with
a receipt identifying the reason for the transfer. The Agency will not
endorse the original loan note guarantee to the lender under any
circumstances.
Sec. 5001.516 Protective advances.
Protective advances are allowed only when they are necessary to
preserve the value of the collateral. Therefore, a lender must exercise
sound judgment in determining that the protective advance
[[Page 42575]]
preserves collateral and recovery is actually enhanced by making the
advance.
(a) Protective advances must be reasonable with respect to the
outstanding loan amount and the value of the collateral being
preserved.
(b) A lender cannot make protective advances in lieu of additional
loans.
(c) A lender must obtain written Agency approval for any protective
advance that will cumulatively amount to more than $200,000, or 10
percent of the aggregate outstanding balance of principal and interest,
whichever is less, to the same borrower.
(d) Protective advances constitute an indebtedness of the borrower
to the lender and must be secured by collateral to the same extent as
the original guaranteed loan.
(e) Notwithstanding Sec. 5001.22(c) of this part, upon Agency
approval, protective advances can be used to pay Federal tax liens or
other Federal debt.
(f) A Protective advance claim will be paid only at the time of the
final payment as indicated in the report of loss. In the event of a
final loss, protective advances may accrue interest at the promissory
note rate from the date of such advance and will be guaranteed at the
same percentage of loss as provided for in the loan note guarantee. The
loan note guarantee will not cover interest on the protective advance
accruing after the interest termination date.
(g) The maximum loss to be paid by the Agency will never exceed the
original loan amount plus accrued interest times the percentage of
guarantee regardless of any protective advances made.
(h) Holders do not have an interest in protective advances.
Sec. 5001.517 Liquidation.
In the event of one or more incidents of default or third-party
actions that the borrower cannot or will not cure or eliminate within a
reasonable period of time, the lender, with Agency consent, must
provide for liquidation in accordance with paragraphs (a) through (n)
of this section. The lender is responsible for initiating actions
immediately and as necessary to assure a prompt, orderly liquidation
that will provide maximum recovery. The Agency reserves the right to
unilaterally conclude that liquidation is necessary and require the
lender to assign the collateral to the Agency and the Agency will then
liquidate the loan per paragraph (o) of this section.
(a) Decision to liquidate. A decision to liquidate a loan or
proceed otherwise must be made when the lender determines that the
default cannot be cured or when the Agency and the lender determine
that it is in the best interest of the Agency and the lender to
liquidate. The decision to liquidate or proceed otherwise with the
borrower must be made as soon as possible when one or more of the
following exist:
(1) The loan is 90 calendar days behind on any scheduled payment
and the lender and the borrower have not been able to cure the
delinquency;
(2) Delaying liquidation will jeopardize full or maximum recovery
on the loan; or
(3) The borrower or lender is uncooperative in resolving the
problem or the Agency or lender has reason to believe the borrower is
not acting in good faith, and immediate liquidation would minimize loss
to the Agency.
(b) Repurchase of loan. When the decision to liquidate a loan is
made, if any portion of the loan has been sold or assigned under Sec.
5001.408 of this part and has not already been repurchased, the lender
must make provisions for repurchase in accordance with Sec. 5001.511.
(c) Lender's liquidation plan. Within 30 calendar days after the
lender decides to liquidate a loan, the lender must submit a written,
proposed plan of liquidation to the Agency for approval. The
liquidation plan must be detailed and include at least the following
information:
(1) Such proof as the Agency requires to establish the lender's
ownership of the guaranteed loan promissory note and related security
instruments;
(2) A copy of the payment ledger, if available, or other
documentation that reflects the current outstanding loan balance,
accrued interest to date, and the method of computing the accrued
interest;
(3) A full and complete list of all collateral and a listing of all
liens held and status of such liens, plus any personal and corporate
guarantees;
(4) The recommended liquidation methods for making the maximum
collection possible on the indebtedness and the justification for such
methods, including recommended action for acquiring and disposing of
all collateral and collecting from guarantors;
(5) Necessary steps for preservation of the collateral including
any anticipated protective advances;
(6) The market value and the potential liquidation value, or
estimates thereof, of all the collateral securing the loan.
(i) These values or estimates of the collateral must be obtained by
the lender through an independent appraisal. If the outstanding balance
of principal and interest is less than $250,000, the lender may,
instead of an appraisal, obtain these values or estimates by using
their primary regulator's policies relating to appraisals and
evaluations or, if the lender is not regulated, normal banking
practices and generally accepted methods of determining value.
(ii) The procedure used to obtain these values or estimates of the
collateral must include an evaluation of the impact of any release of
hazardous substances, petroleum products, or other environmental
hazards.
(iii) Any independent appraiser's fee, including the cost of the
environmental site assessment if necessary, will be shared equally by
the Agency and the lender;
(7) Proposed protective bid amounts on collateral to be sold at
auction and a description to show how the amounts were determined.
(i) A protective bid can be made by the lender, with prior Agency
written approval, at a foreclosure sale to protect the lender's and the
Agency's interest.
(ii) The protective bid must not exceed the amount of the loan
balance plus applicable foreclosure expenses and must be based on the
liquidation value and estimated net recovery considering prior liens
and outstanding taxes, expenses of foreclosure, and estimated expenses
for holding and reselling the property. Foreclosure expenses include,
but are not limited to, expenses for resale, interest accrual, length
of time necessary for resale, maintenance, guard service,
weatherization, and prior liens;
(8) Copies of the borrower's latest available financial statements;
(9) Copies of each guarantor's latest available financial
statements;
(10) An itemized list of estimated liquidation expenses expected to
be incurred along with justification for each expense;
(11) Estimated protective advance amounts with justification;
(12) If a voluntary conveyance is considered, the proposed amount
to be credited to the guaranteed debt;
(13) Legal opinions, if needed by the lender's legal counsel; and
(14) A schedule to periodically report to the Agency on the
progress of liquidation, not to exceed every 60 days.
(d) Partial liquidation plan. If actions are necessary to
immediately preserve and protect the collateral, the lender may submit
a partial liquidation plan and, when approved by the Agency, submit a
complete liquidation plan prepared by the Lender in accordance with
paragraph (c) of this section.
(e) Approval of liquidation plan. The lender cannot implement its
liquidation
[[Page 42576]]
plan before obtaining written approval from the Agency. The Agency will
approve or disapprove the plan within 30 calendar days of its receipt.
In order to ensure prompt action, the lender may submit its liquidation
plan with an estimate of collateral value, and the Agency may approve
the liquidation plan subject to the results of the final liquidation
appraisal.
(1) If the Agency approves the lender's liquidation plan, the
lender must:
(i) Proceed expeditiously with liquidation;
(ii) Take all legal action necessary to liquidate the loan in
accordance with the approved liquidation plan; and
(iii) Update or modify the liquidation plan when conditions
warrant, including a change in value based on a liquidation appraisal.
(iv) If changed circumstances after submission of the liquidation
plan require a revision of liquidation costs, the lender must obtain
the Agency's written approval prior to proceeding with the proposed
changes if the revised liquidation costs exceed 10 percent of the
amount proposed in the liquidation plan approved by the Agency.
(2) If the Agency does not approve the lender's liquidation plan,
the Agency will meet with the lender to resolve the concern(s). Until
the concerns are resolved, the lender must take such actions that a
reasonable lender would take without a guarantee and keep the Agency
informed, in writing, of those actions. Once the revised liquidation
plan is approved by the Agency, the lender must proceed in accordance
with paragraphs (e)(1)(i) through (iii) of this section.
(f) Acceleration. The lender must proceed to accelerate the loan as
expeditiously as possible when acceleration is necessary, including
giving any notices and taking any other required legal actions. The
guaranteed loan will be considered in liquidation once it has been
accelerated and a demand for payment has been made upon the borrower.
(1) If the sole basis for acceleration is a non-monetary default,
the lender must obtain concurrence from the Agency prior to
accelerating the loan. In the case of monetary default, the lender may
accelerate the loan without prior approval by the Agency, although
Agency concurrence must still be given no later than the time the
Agency approves the liquidation plan.
(2) The Lender must provide the Agency a copy of the acceleration
notice or other acceleration document sent to the borrower.
(g) Estimated loss claim and payment. If the lender is conducting
the liquidation and owns any or all the guaranteed portion of the loan,
the lender must file an estimated loss claim once a decision has been
made to liquidate if the liquidation will exceed 90 calendar days. The
Agency will process the estimated loss claim and will make final loss
payments in accordance with Sec. 5001.521.
(h) Liquidation expenses. (1) The guarantee will not cover
liquidation expenses in excess of liquidation proceeds under any
circumstances.
(2) When a liquidation is performed by the lender, the Agency must
approve, in advance and in writing, the lender's estimated liquidation
expenses of collateral.
(3) Liquidation expenses must be reasonable and customary and must
provide a demonstrated economic benefit to the lender and the Agency.
The lender and Agency will share liquidation expenses equally. To
accomplish this, the lender must deduct 50 percent of the liquidation
expenses from the collateral sale proceeds.
(i) Accounting and reports. The lender must account for funds
during the period of liquidation and must provide the Agency with
reports on the progress of liquidation including disposition of
collateral and resulting costs. If in the course of implementing the
approved liquidation plan the lender determines additional procedures
are necessary for the successful completion of the liquidation or
otherwise makes any other changes to or deviations from the approved
liquidation plan, the lender must identify in the report such
procedures, changes, and deviations.
(j) Transmitting payments and proceeds to the Agency. When the
Agency is the holder of a portion of the guaranteed loan, the lender
must transmit to the Agency within 14 calendar days the Agency's pro
rata share of any payments received from the borrower, liquidation, or
other proceeds using an Agency approved form.
(k) Disposition of collateral. (1) Disposition of collateral
acquired by the lender must be approved, in writing, by the Agency
when--
(i) The lender's cost to acquire the collateral of a borrower
exceeds the potential recovery value of the security and the lender
proposes abandoning the collateral in lieu of liquidation; or
(ii) The acquired collateral is to be sold to the borrower,
affiliates or members of the borrower or to borrower's stockholders or
officers, or the lender or lender's stockholders or officers.
(2) A recommendation by the lender for abandonment of collateral is
considered a servicing action under 7 CFR 1970.8(e) and a separate NEPA
review is not required.
(l) Disposition of personal or corporate guarantees. The lender
must take action to maximize recovery from all personal and corporate
guarantees, including seeking deficiency judgments when there is a
reasonable chance of future collection.
(m) Compromise settlement. Compromise settlements must be approved
by the lender and the Agency. The lender must provide complete current
financial information on all parties obligated for the loan. At a
minimum, the compromise settlement must be equivalent to the value and
timeliness of that which would be received from attempting to collect
on the guarantee. Any guarantor cannot be released from liability until
the full amount of the compromise settlement has been received. In
determining whether to approve a compromise settlement, the Agency will
consider, among other things, whether the compromise is more
financially advantageous than collecting on the guarantee.
(n) Liquidation provisions selection. (1) If a lender has made a
loan guaranteed under one of the programs identified in Sec. 5001.1 of
this part, the lender has the option to liquidate the loan under the
provisions of this part or under the entire provisions of applicable
regulation at the time the loan was guaranteed by the Agency.
(2) The lender must notify the Agency in writing within 10 calendar
days after its decision to liquidate as to which regulatory provisions
it chooses to use. If the lender does not notify the Agency in writing
within these 10 calendar days, it must use the liquidation provisions
in this part.
(o) Agency liquidation. The Agency will liquidate a guaranteed loan
at its option only when it is a holder and there is reason to believe
the lender is not likely to undertake liquidation efforts that will
result in maximum recovery. When it conducts a liquidation, the Agency
will apply proceeds derived from the sale of the collateral first to
reasonable liquidation expenses and second to the guaranteed portion of
the loan.
Sec. 5001.518 [Reserved]
Sec. 5001.519 Bankruptcy.
(a) Lender's responsibilities. The lender is responsible for
protecting the guaranteed loan and the collateral securing it in
bankruptcy and any
[[Page 42577]]
related appellate proceedings. These responsibilities include, but are
not limited to, the following:
(1) Taking actions that result in greater recoveries and avoiding
actions that are likely not to be cost-effective;
(2) Monitoring confirmed bankruptcy plans to determine borrower
compliance, and, if the borrower fails to comply, pursuing appropriate
relief, including seeking a dismissal of the bankruptcy plan;
(3) Requesting modifications of any proposed bankruptcy plan
whenever it appears that the lender could obtain additional recoveries
via plan modification;
(4) Filing a proof of claim, when necessary, and all the necessary
papers and pleadings concerning the case;
(5) Attending and, when necessary, participating in meetings of the
creditors and all court proceedings;
(6) Immediately seeking adequate protection of the collateral if it
is subject to being used by the trustee in bankruptcy or the debtor in
possession;
(7) When appropriate, seeking involuntary conversion of a pending
chapter 11 case to a liquidation proceeding or seeking dismissal of the
proceedings;
(8) Submitting a default status report within 15 calendar days
after the date when the borrower defaults and every 30 calendar days
thereafter until the default is resolved or a final loss claim is paid
by the Agency; and
(9) Informing the Agency within 10 working days upon notification
of the filing of a bankruptcy case and keeping the Agency adequately
and regularly informed, in writing, of all aspects of the proceedings,
at a minimum, on a bi-monthly basis.
(b) Appraisals. In a Chapter 9 or Chapter 11 reorganization, the
lender must obtain an independent appraisal of the collateral if the
Agency has determined that an independent appraisal is necessary. With
written Agency consent, the lender and Agency will equally share the
cost of any independent appraisal fee to protect the guaranteed loan in
any bankruptcy proceedings.
(c) Repurchase from the holder. The Agency or the lender, with the
approval of the Agency, can initiate the repurchase of the unpaid
guaranteed portion of the loan from the holder. If the lender is the
holder, an estimated loss payment may be filed at the initiation of a
Chapter 7 proceeding or after a Chapter 9 or Chapter 11 proceeding
becomes a liquidation proceeding. Any loss payment on loans in
bankruptcy must be approved by the Agency.
(d) Reports of loss during bankruptcy. In bankruptcy proceedings,
the lender must use the report of loss form for reporting all estimated
and final loss determinations. Payment of loss claims will be made as
provided in this section.
(1) Estimated loss payments. (i) If a borrower has filed for
bankruptcy and all or a portion of the debt has been discharged, the
lender must request an estimated loss payment of the guaranteed portion
of the accrued interest and principal discharged by the court. Only one
estimated loss payment is allowed during the bankruptcy and any related
appellate proceedings. The Agency will treat all subsequent claims of
the lender during bankruptcy and any related appellate proceedings as
revisions to the initial estimated loss. At its option, the Agency may
process a revised estimated loss payment in accordance with any court-
approved changes in the bankruptcy plan. Once the bankruptcy plan has
been satisfactorily completed, the lender is responsible for submitting
the documentation necessary for the Agency to review and adjust the
estimated loss claim to reflect any actual discharge of principal and
interest and to reimburse the lender for any court-ordered interest
rate reduction under the terms of the bankruptcy plan.
(ii) The lender must use the report of loss to request an estimated
loss payment and to revise any estimated loss payments during the
bankruptcy plan. The estimated loss claim, as well as any revisions to
this claim, must be accompanied by documentation to support the claim.
(iii) Upon completion of a bankruptcy plan, the lender must--
(A) Enter the data directly into the Agency's electronic system;
and
(B) Provide the Agency with the documentation necessary to
determine whether the estimated loss paid equals the actual loss
sustained. Where the actual loss sustained is different than the
estimated loss paid, the difference will be handled in accordance with
Sec. 5001.521(h).
(2) Bankruptcy loss payments. (i) The lender must request a
bankruptcy loss payment of the guaranteed portion of the accrued
interest and principal discharged by the court for all bankruptcies
when all or a portion of the debt has been discharged. Unless a final
court decree approves a subsequent change to the bankruptcy plan that
is adverse to the lender, only one bankruptcy loss payment is allowed
during the bankruptcy. Once a final court decree has discharged all or
part of the guaranteed loan and any appeal period has run, the lender
must submit the documentation necessary for the Agency to review and
adjust the bankruptcy loss claim to reflect any actual discharge of
principal and Interest.
(ii) The lender must use the report of loss to request a bankruptcy
loss payment and to revise any bankruptcy loss payments during the
course of the bankruptcy. The lender must include with the bankruptcy
loss claim documentation to support the claim, as well as any revisions
to this claim.
(iii) Upon completion of a bankruptcy plan, restructure, or
liquidation, the lender must enter the data directly into the Agency's
electronic reporting system.
(iv) If an estimated loss claim is paid during a bankruptcy and the
borrower repays in full the remaining balance without an additional
loss sustained by the lender, a final report of loss will be filed to
terminate the loan.
(3) Interest losses as a result of bankruptcy reorganization.
Interest losses as a result of bankruptcy reorganization will be paid
as described in paragraphs (e)(3)(i) and (ii) of this section, as
applicable.
(i) For guaranteed loans closed for which the Agency has not issued
an interest termination letter--
(A) The loss of interest income sustained during the period of the
bankruptcy plan will be processed in accordance with paragraph (d)(1)
of this section;
(B) The loss of interest income sustained after the bankruptcy plan
is confirmed will be processed annually when the lender sustains a loss
as a result of a permanent interest rate reduction that extends beyond
the period of the bankruptcy plan; and
(C) If an estimated loss claim is paid during the operation of the
bankruptcy plan and the borrower repays in full the remaining balance
without an additional loss sustained by the lender, a final report of
loss will be filed to terminate the loan.
(ii) For guaranteed loans closed for which the Agency has issued an
interest termination letter, the Agency will not compensate the lender
for any difference in the interest rate specified in the loan note
guarantee and the rate of interest specified in the bankruptcy plan.
(4) Final bankruptcy loss payments. The Agency will process final
bankruptcy loss payments when the loan is fully liquidated.
(5) Application of loss claim payments. The lender must apply
estimated loss payments first to the principal balance of the
guaranteed portion of the debt and then to the
[[Page 42578]]
interest of the guaranteed portion of the debt. In the event a court
attempts to direct the payments to be applied in a different manner,
the lender must immediately notify the Agency in writing.
(6) Protective advances. If approved protective advances, as
authorized by Sec. 5001.516, were incurred in connection with the
initiation of liquidation action and were required to protect the
collateral as result of delays in the case or failure of the borrower
to maintain the security prior to the borrower having filed bankruptcy,
the protective advances together with accrued interest, as determined
under Sec. 5001.450(c) of this part, are payable under the guarantee
in the final loss claim.
(e) Liquidation expenses during bankruptcy proceedings. (1) The
liquidation expenses will be in compliance with Sec. 5001.517(h).
(2) Reasonable and customary liquidation expenses in bankruptcy may
be deducted from liquidation proceeds of collateral. In the case of
Chapter 11 reorganizations or Chapters 11 or 7 liquidation, only
expenses authorized by the court can be deducted from the collateral
proceeds, unless the liquidation is by the lender.
(3) When a bankruptcy proceeding results in a liquidation of the
borrower by a bankruptcy trustee appointed under 11 U.S.C. 701, 702,
703, or 1104, expenses will be handled as directed by the court, and
the lender cannot claim liquidation expenses for the sale of the
assets.
(4) If the property is abandoned by the bankruptcy trustee and any
relief from the stay has been obtained, the lender will conduct the
liquidation in accordance with Sec. 5001.517.
(5) Proceeds received from partial sale of collateral during
bankruptcy can be used by the lender to pay reasonable costs (e.g.,
freight, labor, and sales commissions) associated with the partial
sale. Reasonable use of proceeds for this purpose must be documented
with the final loss claim request.
(6) Legal fees as a result of a bankruptcy are limited by the
Agency to an amount not to exceed 3 percent of the current principal
balance and are only recoverable from liquidation proceeds. Legal fees
in excess of 3 percent of the current principal balance shall be borne
by the lender and are not recoverable from liquidation proceeds or any
loss claim by the lender.
Sec. 5001.520 Litigation.
(a) In all litigation proceedings involving the borrower, the
lender is responsible for protecting the rights of the lender and the
Agency with respect to the loan and keeping the Agency adequately and
regularly informed, in writing, of all aspects of the proceedings. If
the Agency determines that the lender is not adequately protecting the
rights of the lender or the Agency with respect to the loan, the Agency
reserves the right to take any legal action the Agency determines
necessary to protect the rights of the lender and Agency, on behalf of
the lender or the Agency. If the Agency exercises this right, the
lender must cooperate with the Agency. The Agency will assess against
the lender any cost the Agency incurs with such action.
(b) Notwithstanding any other provision of this part, the Agency
reserves the right to be represented by the U.S. Department of Justice
in any litigation where the Agency is named as a party.
Sec. 5001.521 Loss calculations and payment.
Unless the Agency anticipates a future recovery, the Agency will
make a final settlement with the lender after the collateral is
liquidated or after settlement and compromise of all parties has been
completed. The Agency has the right to recover losses paid under the
guarantee from any party that may be liable.
(a) Report of loss form. The lender must use the report of loss
form for all estimated and final loss claim requests.
(b) Estimated loss claim. The lender must submit to the Agency a
completed report of loss form for all estimated loss claims. In
calculating the estimated loss, the lender must use the estimated or
current appraised liquidation value of the collateral.
(c) Estimated loss payment. The Agency will approve estimated loss
payments only after it has approved the lender's liquidation plan. For
a loan which has been approved by the Agency for a debt write-down (or
debt restructure), the maximum amount of loss payment will not exceed
the percent of guarantee multiplied by the difference between the
outstanding principal and interest balance of the loan before the
write-down and the outstanding balance of the loan after the write-
down.
(1) The amount of an estimated loss payment must be credited first
as a deduction from the principal balance of the loan with any
remaining balance to accrued interest.
(2) The estimated loss payment cannot be applied as a payment on
the loan for purposes of reducing the unpaid balance owed by the
borrower for status reporting or any debt collection actions against
the borrower or any guarantors.
(d) Reduction of loss claims payable. (1) Negligent loan
origination and negligent loan servicing will result in a reduction of
loss claims payable under the guarantee to the lender if any losses
have occurred as the result of such negligence. The Agency will assess
against the lender any cost to the Agency associated with actions taken
by the Agency necessary to protect the Agency's interests with respect
to the loan where a lender is not in compliance with its origination
and servicing responsibilities. The extent of the reduction, which
could be a total reduction of the loss claims payable, will depend on
the extent of the losses incurred as a result of the negligent loan
origination or servicing.
(2) Non-compliance with the requirements of Sec. 5001.205(a) or
Sec. 5001.305(a) will result in a reduction of loss claims payable.
The Agency's review of the non-compliance could result in a total
reduction of the loss claim payable.
(3) Any delinquent fees, including any interest due thereon, will
be deducted from any loss payment due the lender.
(e) Final loss claim. Except for certain unsecured personal or
corporate guarantees as provided for in this section, the lender must
submit a final report of loss to the Agency within 30 calendar days
after liquidation of all collateral is completed. The Agency will not
guarantee interest beyond the interest termination date or this 30-day
period, other than for the period of time it takes the Agency to
process the loss claim. The lender must apply the total amount of the
loss payment remitted by the Agency to the guaranteed portion of the
loan debt. At the time of final loss settlement, the lender must notify
the borrower that the loss payment has been so applied. Such
application does not release the borrower from liability. Once the
lender receives a final loss payment from the Agency, the Agency will
collect any outstanding debts owed to the government in accordance with
part 3 of this title.
(1) Loss. In the event of a loss, the loan note guarantee will not
cover--
(i) Interest to the lender accruing after the interest termination
date;
(ii) Any interest accrued as the result of the borrower's default
on the guaranteed loan over and above that which would have accrued at
the Agency-approved promissory note rate on the guaranteed loan (e.g.,
default interest rate); or
(iii) Any late fees, penalties, bond fees, interest rate swap
charges, liquidation expenses, and other costs
[[Page 42579]]
unless authorized under paragraph (e)(7) of this section.
(2) Accounting of funds. Before the Agency will approve a final
report of loss, the lender must account for all funds during the period
of liquidation, disposition of the collateral, all costs incurred, and
any other information necessary for the successful completion of
liquidation. The lender must document and show that all the collateral
has been accounted for and properly liquidated, and that liquidation
proceeds have been properly accounted for and applied correctly on the
loan.
(3) Audit. Upon receipt of the final accounting and report of loss,
the Agency may audit all applicable documentation to determine the
final loss. The lender must make its records available to and otherwise
assist the Agency in making any investigation or audit of the report of
loss. The documentation accompanying the Report of loss must support
the amounts reported. The Agency must be satisfied that the lender has
maximized the collections in conducting the liquidation.
(4) Guarantees. The lender must determine the collectability of
unsecured personal and corporate guarantees required in accordance with
Sec. 5001.204 of this part. The lender must promptly collect or
otherwise dispose of such guarantees prior to completion of the final
loss report. However, if collection from the guarantors appears
unlikely or will require a prolonged period of time, the lender must
file the report of loss when all other collateral has been liquidated.
Unsecured personal or corporate guarantees outstanding at the time of
the submission of the final report of loss will be treated as a Future
Recovery with the net proceeds to be shared on a pro rata basis by the
lender and the Agency.
(5) Federal debt. Any amounts paid by the Agency on account of
liabilities of a borrower constitute a Federal debt owed to the Agency
by the borrower. In such case, the Agency can use all remedies
available to it to collect the debt from the borrower, including offset
in accordance with part 3 of this title.
(i) Any amounts paid by the Agency pursuant to a claim by a lender
constitute a Federal debt owed to the Agency by a third-party guarantor
of the guaranteed loan, to the extent of the amount of the third-party
guarantee. In such case, the Agency can use all remedies available to
it to collect the debt from the third-party guarantor including offset
in accordance with part 3 of this title.
(ii) The Agency may consider a compromise settlement of a debt owed
to the Agency after it has processed a final report of loss and issued
a 60-day due process letter. Any funds collected by the Agency will not
be shared with the lender.
(6) Protective advances. In those instances where the lender made
authorized protective advances, the lender can claim recovery for the
guaranteed portion of any loss of monies advanced as well as interest
resulting from such protective advances. These claims must be included
in the final report of loss. The lender must provide receipts and a
breakdown of protective advances as to the payee, purpose of the
expenditure, date paid, evidence that the amount expended was proper,
and that the amount was actually paid.
(7) Liquidation expenses. As provided in Sec. 5001.517(e), certain
reasonable liquidation expenses are allowed during the liquidation
process. The lender cannot claim any liquidation expenses in excess of
liquidation proceeds.
(i) Liquidation expenses are recoverable only from liquidation
proceeds. The Agency will deduct liquidation expenses from the
liquidation proceeds of the collateral unless the costs have been
previously determined by the lender (with Agency concurrence) to be
protective advances. The lender must provide receipts and a breakdown
of liquidation expenses as to the payee, purpose of the expenditure,
date paid, evidence that the amount expended was proper, and that the
amount was actually paid.
(ii) The Agency may approve legal fees as liquidation expenses
provided that the fees are reasonable, require the assistance of
attorneys, and cover legal issues pertaining to the liquidation that
could not be properly handled by the lender, its employees or in-house
counsel. Approved legal expenses are limited by the Agency to an amount
not to exceed 3 percent of the current principal balance and will be
shared by the lender and Agency equally. This includes those instances
where the lender has incurred such expenses from a trustee conducting
the liquidation of assets. Legal fees in excess of 3 percent of the
current principal balance shall be borne by the lender and are not
recoverable from liquidation proceeds or any loss claim by the lender.
(iii) The lender cannot claim the guarantee fee or the other Agency
fees as authorized liquidation expenses, and In-house expenses of the
lender are not allowed.
(8) Accrued interest. If the lender holds all or a portion of the
guaranteed loan, the Agency will guarantee accrued interest in
accordance with Sec. 5001.450(c) of this part.
(i) Accrued interest eligible for payment under the guarantee on a
defaulted loan will be discontinued when the estimated loss is paid.
Interest will not be paid beyond the interest termination date.
(ii) The lender must support accrued interest by documenting how
the amount was accrued, including attaching a copy of both the
promissory note and ledger. If the interest rate was a variable rate,
the lender must include documentation of changes in both the selected
base rate and the loan rate.
(iii) If a restructuring of a guaranteed loan includes the
capitalization of interest, the guarantee will not cover the interest
accrued on the capitalized Interest.
(9) Acquiring property titles. If a lender acquires title to
property, any loss will be based on the collateral value at the time
the lender obtains title. Alternatively, the lender can calculate the
final loss settlement using the net proceeds received at the time of
the ultimate disposition of the property if--
(i) The lender has submitted to the Agency a written request to use
this option within 15 calendar days of acquiring title; and
(ii) The Agency approves the request prior to the lender submitting
any request for estimated loss payment.
(f) Loss limit. The amount payable by the Agency to the lender
cannot exceed the limits contained in the loan note guarantee. If the
lender conducts the liquidation, loss occasioned by accruing interest
will be covered to the interest termination date, provided the lender
proceeds expeditiously with the liquidation plan approved by the
Agency. If the Agency conducts the liquidation, loss occasioned by
accruing interest will be covered by the guarantee only to the date the
Agency accepts this responsibility.
(g) Rent. The lender must apply any net rental or other income that
it receives from the collateral to the guaranteed loan debt.
(h) Final loss payment. The Agency will make loss payments after it
has reviewed the complete final report of loss, all collateral has been
properly liquidated and accounted for, and the Agency has determined
that liquidation expenses are reasonable and within approved limits.
(1) Any estimated loss payments made to the lender will be credited
against the final loss payment on the guaranteed loan.
(2) Once the Agency approves the report of loss and supporting
documents submitted by the lender--
[[Page 42580]]
(i) If the actual loss is greater than any estimated loss payment,
the Agency will pay the additional amount owed by the Agency to the
lender.
(ii) If the actual loss is less than the estimated loss payment,
the lender must reimburse the Agency for the overpayment plus interest
at the promissory note rate from the date of payment of the estimated
loss.
(iii) If the Agency conducted the liquidation, it will provide an
accounting to the lender and will pay the lender in accordance with the
loan note guarantee.
Sec. 5001.522 Future recovery.
After a final loss claim has been paid, the lender must use
reasonable efforts to collect from any party still liable for future
recovery unless the Agency notifies the lender otherwise. Any net
proceeds from future recovery will be split pro rata between the lender
and the Agency based on the percent of the loan guarantee even if the
loan note guarantee has been terminated. Once the Agency determines a
debt is Federal debt and provides notice to the lender, that Federal
debt is excluded from future recovery. The lender must cease all
collection efforts against the borrower and any individual or corporate
guarantors upon referral of the debts by the Agency for collection in
accordance with part 3 of this title. The Agency will not share with
the lender any collection of Federal debt made by the Federal
Government from any liable party to the guaranteed loan.
Sec. 5001.523 Property acquired by the lender.
(a) Collateral preservation. When a lender acquires title to the
collateral and the final loss claim is not paid until final
disposition, the lender must proceed as quickly as possible to develop
a plan to fully protect the collateral from deterioration (weather,
vandalism, etc.). Hazard insurance in an amount necessary to cover the
market value of the collateral must be maintained.
(b) Collateral sale. (1) Upon acquiring the collateral, the lender
must prepare and submit without delay to the Agency a plan on the best
method for the sale of the collateral, keeping in mind any prospective
purchasers. The Agency must approve the plan in writing. If an existing
approved liquidation plan addresses the disposition of acquired
property, no further review is required unless modification of the plan
is needed.
(2) Whenever the conversion of collateral to cash can reasonably be
expected to result in a negative net recovery amount, the lender should
consider abandonment of the collateral. If the lender seeks to abandon
the collateral, the lender must obtain written Agency approval before
abandoning the collateral.
(c) Re-title collateral. Any collateral accepted by the lender must
not be titled in the Agency's name in whole or in part.
Sec. 5001.524 Termination of loan note guarantee.
Each loan note guarantee issued under this part or under one of the
guaranteed loan programs identified in Sec. 5001.1 of this part will
terminate automatically when one of the events described in paragraphs
(a) through (c) of this section occur. The lender will maintain its
guaranteed loan files for at least three years after termination of the
loan note guarantee.
(a) The guaranteed loan is paid in full;
(b) Full payment by the Agency of any loss claim or compromised
settlement except for future recovery provisions; or
(c) Written request from the lender to the Agency to terminate the
guarantee, which will be effective the date the Agency receives the
request provided that the lender holds all the guaranteed portion of
the loan.
(d) The Agency may terminate the loan note guarantee if it is
determined that the lender or borrower failed to adhere to the
applicable provisions of this part or other good cause.
Sec. Sec. 5001.525-5001.600 [Reserved]
Bette B. Brand,
Deputy Under Secretary, Rural Development.
[FR Doc. 2020-13991 Filed 7-13-20; 8:45 am]
BILLING CODE 3410-15-P
