Public Law 105-178

Public Law 105-178

105th Congress

An Act

To authorize funds for Federal-aid highways, highway safety programs,

and transit programs, and for other purposes. <<NOTE: June 9,

1998 - [H.R. 2400]>>

Be it enacted by the Senate and House of Representatives of the

United States of America in Congress assembled, <<NOTE: Transportation

Equity Act for the 21st Century. Grants. Inter- governmental

relations. Loans.>>

Subtitle B--Railroads

Sec. 7201. High-speed rail.

Sec. 7202. Light density rail line pilot projects.

Sec. 7203. Railroad rehabilitation and improvement financing.

Sec. 7204. Alaska Railroad.

Subtitle B--Railroads

SEC. 7203. RAILROAD REHABILITATION AND IMPROVEMENT FINANCING.

(a) Amendments.--Title V of the Railroad Revitalization and

Regulatory Reform Act of 1976 is amended--

(1) by striking sections 501 through 504 <<NOTE: 45 USC 821-

824.>> and inserting the following new sections:

``SEC. 501. DEFINITIONS. <<NOTE: 45 USC 821.>>

``For purposes of this title:

``(1)(A) The term `cost' means the estimated long-term cost

to the Government of a direct loan or loan guarantee or

modification thereof, calculated on a net present value basis,

excluding administrative costs and any incidental effects on

governmental receipts or outlays.

``(B) The cost of a direct loan shall be the net present

value, at the time when the direct loan is disbursed, of the

following estimated cash flows:

``(i) Loan disbursements.

``(ii) Repayments of principal.

``(iii) Payments of interest and other payments by

or to the Government over the life of the loan after

adjusting for estimated defaults, prepayments, fees,

penalties, and other recoveries.

Calculation of the cost of a direct loan shall include the

effects of changes in loan terms resulting from the exercise by

the borrower of an option included in the loan contract.

``(C) The cost of a loan guarantee shall be the net present

value, at the time when the guaranteed loan is disbursed, of the

following estimated cash flows:

``(i) Payments by the Government to cover defaults

and delinquencies, interest subsidies, or other

payments.

``(ii) Payments to the Government, including

origination and other fees, penalties, and recoveries.

Calculation of the cost of a loan guarantee shall include the

effects of changes in loan terms resulting from the exercise by

the guaranteed lender of an option included in the loan

[[Page 112 STAT. 472]]

guarantee contract, or by the borrower of an option included in

the guaranteed loan contract.

``(D) The cost of a modification is the difference between

the current estimate of the net present value of the remaining

cash flows under the terms of a direct loan or loan guarantee

contract, and the current estimate of the net present value of

the remaining cash flows under the terms of the contract, as

modified.

``(E) In estimating net present values, the discount rate

shall be the average interest rate on marketable Treasury

securities of similar maturity to the cash flows of the direct

loan or loan guarantee for which the estimate is being made.

``(F) When funds are obligated for a direct loan or loan

guarantee, the estimated cost shall be based on the current

assumptions, adjusted to incorporate the terms of the loan

contract, for the fiscal year in which the funds are obligated.

``(2) The term `current' has the same meaning as in section

250(c)(9) of the Balanced Budget and Emergency Deficit Control

Act of 1985.

``(3) The term `direct loan' means a disbursement of funds

by the Government to a non-Federal borrower under a contract

that requires the repayment of such funds. The term includes the

purchase of, or participation in, a loan made by another lender

and financing arrangements that defer payment for more than 90

days, including the sale of a Government asset on credit terms.

The term does not include the acquisition of a federally

guaranteed loan in satisfaction of default claims.

``(4) The term `direct loan obligation' means a binding

agreement by the Secretary to make a direct loan when specified

conditions are fulfilled by the borrower.

``(5) The term `intermodal' means of or relating to the

connection between rail service and other modes of

transportation, including all parts of facilities at which such

connection is made.

``(6) The term `loan guarantee' means any guarantee,

insurance, or other pledge with respect to the payment of all or

a part of the principal or interest on any debt obligation of a

non-Federal borrower to a non-Federal lender, but does not

include the insurance of deposits, shares, or other withdrawable

accounts in financial institutions.

``(7) The term `loan guarantee commitment' means a binding

agreement by the Secretary to make a loan guarantee when

specified conditions are fulfilled by the borrower, the lender,

or any other party to the guarantee agreement.

``(8) The term `modification' means any Government action

that alters the estimated cost of an outstanding direct loan (or

direct loan obligation) or an outstanding loan guarantee (or

loan guarantee commitment) from the current estimate of cash

flows. This includes the sale of loan assets, with or without

recourse, and the purchase of guaranteed loans. This also

includes any action resulting from new legislation, or from the

exercise of administrative discretion under existing law, that

directly or indirectly alters the estimated cost of outstanding

direct loans (or direct loan obligations) or loan guarantees (or

loan guarantee commitments) such as a change in collection

procedures.

[[Page 112 STAT. 473]]

``SEC. 502. DIRECT LOANS AND <<NOTE: 45 USC 822.>> LOAN GUARANTEES.

``(a) General Authority.--The Secretary may provide direct loans and

loan guarantees to State and local governments, government sponsored

authorities and corporations, railroads, and joint ventures that include

at least 1 railroad.

``(b) Eligible Purposes.--

``(1) In general.--Direct loans and loan guarantees under

this section shall be used to--

``(A) acquire, improve, or rehabilitate intermodal

or rail equipment or facilities, including track,

components of track, bridges, yards, buildings, and

shops;

``(B) refinance outstanding debt incurred for the

purposes described in subparagraph (A); or

``(C) develop or establish new intermodal or

railroad facilities.

``(2) Operating expenses not eligible.--Direct loans and

loan guarantees under this section shall not be used for

railroad operating expenses.

``(c) Priority Projects.--In granting applications for direct loans

or guaranteed loans under this section, the Secretary shall give

priority to projects that--

``(1) enhance public safety;

``(2) enhance the environment;

``(3) promote economic development;

``(4) enable United States companies to be more competitive

in international markets;

``(5) are endorsed by the plans prepared under section 135

of title 23, United States Code, by the State or States in which

they are located; or

``(6) preserve or enhance rail or intermodal service to

small communities or rural areas.

``(d) Extent of Authority.--The aggregate unpaid principal amounts

of obligations under direct loans and loan guarantees made under this

section shall not exceed $3,500,000,000 at any one time. Of this amount,

not less than $1,000,000,000 shall be available solely for projects

primarily benefiting freight railroads other than Class I carriers.

``(e) Rates of Interest.--

``(1) Direct loans.--The Secretary shall require interest to

be paid on a direct loan made under this section at a rate not

less than that necessary to recover the cost of making the loan.

``(2) Loan guarantees.--The Secretary shall not make a loan

guarantee under this section if the interest rate for the loan

exceeds that which the Secretary determines to be reasonable,

taking into consideration the prevailing interest rates and

customary fees incurred under similar obligations in the private

capital market.

``(f) Infrastructure Partners.--

``(1) Authority of secretary.--In lieu of or in combination

with appropriations of budget authority to cover the costs of

direct loans and loan guarantees as required under section

504(b)(1) of the Federal Credit Reform Act of 1990, the

Secretary may accept on behalf of an applicant for assistance

under this section a commitment from a non-Federal source to

fund in whole or in part credit risk premiums with respect to

the loan that is the subject of the application. In no event

[[Page 112 STAT. 474]]

shall the aggregate of appropriations of budget authority and

credit risk premiums described in this paragraph with respect to

a direct loan or loan guarantee be less than the cost of that

direct loan or loan guarantee.

``(2) Credit risk premium amount.--The Secretary shall

determine the amount required for credit risk premiums under

this subsection on the basis of--

``(A) the circumstances of the applicant, including

the amount of collateral offered;

``(B) the proposed schedule of loan disbursements;

``(C) historical data on the repayment history of

similar borrowers;

``(D) consultation with the Congressional Budget

Office; and

``(E) any other factors the Secretary considers

relevant.

``(3) Payment of premiums.--Credit risk premiums under this

subsection shall be paid to the Secretary before the

disbursement of loan amounts.

``(4) Cohorts of loans.--In order to maintain sufficient

balances of credit risk premiums to adequately protect the

Federal Government from risk of default, while minimizing the

length of time the Government retains possession of those

balances, the Secretary shall establish cohorts of loans. When

all obligations attached to a cohort of loans have been

satisfied, credit risk premiums paid for the cohort, and

interest accrued thereon, which were not used to mitigate losses

shall be returned to the original source on a pro rata basis.

``(g) Prerequisites for Assistance.--The Secretary shall not make a

direct loan or loan guarantee under this section unless the Secretary

has made a finding in writing that--

``(1) repayment of the obligation is required to be made

within a term of not more than 25 years from the date of its

execution;

``(2) the direct loan or loan guarantee is justified by the

present and probable future demand for rail services or

intermodal facilities;

``(3) the applicant has given reasonable assurances that the

facilities or equipment to be acquired, rehabilitated, improved,

developed, or established with the proceeds of the obligation

will be economically and efficiently utilized;

``(4) the obligation can reasonably be repaid, using an

appropriate combination of credit risk premiums and collateral

offered by the applicant to protect the Federal Government; and

``(5) the purposes of the direct loan or loan guarantee are

consistent with subsection (b).

``(h) Conditions of Assistance.--The Secretary shall, before

granting assistance under this section, require the applicant to agree

to such terms and conditions as are sufficient, in the judgment of the

Secretary, to ensure that, as long as any principal or interest is due

and payable on such obligation, the applicant, and any railroad or

railroad partner for whose benefit the assistance is intended--

``(1) will not use any funds or assets from railroad or

intermodal operations for purposes not related to such

operations, if such use would impair the ability of the

applicant,

[[Page 112 STAT. 475]]

railroad, or railroad partner to provide rail or intermodal

services in an efficient and economic manner, or would adversely

affect the ability of the applicant, railroad, or railroad

partner to perform any obligation entered into by the applicant

under this section;

``(2) will, consistent with its capital resources, maintain

its capital program, equipment, facilities, and operations on a

continuing basis; and

``(3) will not make any discretionary dividend payments that

unreasonably conflict with the purposes stated in subsection

(b).

``SEC. 503. <<NOTE: 45 USC 823 note.>> ADMINISTRATION OF DIRECT LOANS

AND LOAN GUARANTEES.

``(a) Applications.--The Secretary shall prescribe the form and

contents required of applications for assistance under section 502, to

enable the Secretary to determine the eligibility of the applicant's

proposal, and shall establish terms and conditions for direct loans and

loan guarantees made under that section.

``(b) Assignment of Loan Guarantees.--The holder of a loan guarantee

made under section 502 may assign the loan guarantee in whole or in

part, subject to such requirements as the Secretary may prescribe.

``(c) Modifications.--The Secretary may approve the modification of

any term or condition of a direct loan, loan guarantee, direct loan

obligation, or loan guarantee commitment, including the rate of

interest, time of payment of interest or principal, or security

requirements, if the Secretary finds in writing that--

``(1) the modification is equitable and is in the overall

best interests of the United States; and

``(2) consent has been obtained from the applicant and, in

the case of a loan guarantee or loan guarantee commitment, the

holder of the obligation.

``(d) Compliance.--The Secretary shall assure compliance, by an

applicant, any other party to the loan, and any railroad or railroad

partner for whose benefit assistance is intended, with the provisions of

this title, regulations issued hereunder, and the terms and conditions

of the direct loan or loan guarantee, including through regular periodic

inspections.

``(e) Commercial Validity.--For purposes of claims by any party

other than the Secretary, a loan guarantee or loan guarantee commitment

shall be conclusive evidence that the underlying obligation is in

compliance with the provisions of this title, and that such obligation

has been approved and is legal as to principal, interest, and other

terms. Such a guarantee or commitment shall be valid and incontestable

in the hands of a holder thereof, including the original lender or any

other holder, as of the date when the Secretary granted the application

therefor, except as to fraud or material misrepresentation by such

holder.

``(f) Default.--The Secretary <<NOTE: Regulations.>> shall

prescribe regulations setting forth procedures in the event of default

on a loan made or guaranteed under section 502. The Secretary shall

ensure that each loan guarantee made under that section contains terms

and conditions that provide that--

``(1) if a payment of principal or interest under the loan

is in default for more than 30 days, the Secretary shall pay

[[Page 112 STAT. 476]]

to the holder of the obligation, or the holder's agent, the

amount of unpaid guaranteed interest;

``(2) if the default has continued for more than 90 days,

the Secretary shall pay to the holder of the obligation, or the

holder's agent, 90 percent of the unpaid guaranteed principal;

``(3) after final resolution of the default, through

liquidation or otherwise, the Secretary shall pay to the holder

of the obligation, or the holder's agent, any remaining amounts

guaranteed but which were not recovered through the default's

resolution;

``(4) the Secretary shall not be required to make any

payment under paragraphs (1) through (3) if the Secretary finds,

before the expiration of the periods described in such

paragraphs, that the default has been remedied; and

``(5) the holder of the obligation shall not receive payment

or be entitled to retain payment in a total amount which,

together with all other recoveries (including any recovery based

upon a security interest in equipment or facilities) exceeds the

actual loss of such holder.

``(g) Rights of the Secretary.--

``(1) Subrogation.--If the Secretary makes payment to a

holder, or a holder's agent, under subsection (g) in connection

with a loan guarantee made under section 502, the Secretary

shall be subrogated to all of the rights of the holder with

respect to the obligor under the loan.

``(2) Disposition of property.--The Secretary may complete,

recondition, reconstruct, renovate, repair, maintain, operate,

charter, rent, sell, or otherwise dispose of any property or

other interests obtained pursuant to this section. The Secretary

shall not be subject to any Federal or State regulatory

requirements when carrying out this paragraph.

``(h) Action Against Obligor.--The Secretary may bring a civil

action in an appropriate Federal court in the name of the United States

in the event of a default on a direct loan made under section 502, or in

the name of the United States or of the holder of the obligation in the

event of a default on a loan guaranteed under section 502. The holder of

a guarantee shall make available to the Secretary all records and

evidence necessary to prosecute the civil action. The Secretary may

accept property in full or partial satisfaction of any sums owed as a

result of a default. If the Secretary receives, through the sale or

other disposition of such property, an amount greater than the aggregate

of--

``(1) the amount paid to the holder of a guarantee under

subsection (g) of this section; and

``(2) any other cost to the United States of remedying the

default,

the Secretary shall pay such excess to the obligor.

``(i) Breach of Conditions.--The Attorney General shall commence a

civil action in an appropriate Federal court to enjoin any activity

which the Secretary finds is in violation of this title, regulations

issued hereunder, or any conditions which were duly agreed to, and to

secure any other appropriate relief.

[[Page 112 STAT. 477]]

``(j) Attachment.--No attachment or execution may be issued against

the Secretary, or any property in the control of the Secretary, prior to

the entry of final judgment to such effect in any State, Federal, or

other court.

``(k) Investigation Charge.--The Secretary may charge and collect

from each applicant a reasonable charge for appraisal of the value of

the equipment or facilities for which the direct loan or loan guarantee

is sought, and for making necessary determinations and findings. Such

charge shall not aggregate more than one-half of 1 percent of the

principal amount of the obligation.'';

(2) <<NOTE: 45 USC 8253et seq.>> by striking sections 505

through 515 (other than 511(c)), 517, and 518;

(3) in section 511(c) <<NOTE: 45 USC 831.>> by striking

``this section'' and inserting ``section 502'';

(4) by moving subsection (c) of section 511 (as amended by

paragraph (3) of this section) from section 511 to section 503

(as inserted by paragraph (1) of this section), <<NOTE: 45 USC

831, 823.>> inserting it after subsection (a), and

redesignating it as subsection (b); and

(5) by redesignating section 516 as section 504. <<NOTE: 45

USC 836.>>

(b) Technical and Conforming Provisions.--

(1) Table of contents.--The table of contents of title V of

the Railroad Revitalization and Regulatory Reform Act of 1976 is

amended by striking the items relating to sections 502 through

518 and inserting the following:

``Sec. 502. Direct loans and loan guarantees.

``Sec. 503. Administration of direct loans and loan guarantees.

``Sec. 504. Employee protection.''.

(2) <<NOTE: 45 USC 821 note.>> Savings provision.--A

transaction entered into under the authority of title V of the

Railroad Revitalization and Regulatory Reform Act of 1976 (45

U.S.C. 821 et seq.) before the date of enactment of this Act

shall be administered until completion under its terms as if

this Act were not enacted.

(3) Repeal.--Section 211(i) of the Regional Rail

Reorganization Act of 1973 (45 U.S.C. 721(i)) is repealed.

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