7 CFR 1735-General Policies, Types of Loans, Loan Requirements-Telecommunications Program

Rural Utilities Service, USDA

§ 1735.1

15. Date Discussed with Board of Directors
llll
Remarks: llll
EXPLANATORY NOTES
Item No. llll Comments llll
Rated by llll llll Title llll Date
llll
Reviewed by llll Manager llll Date
llll
Reviewed by llll RUS GFR llll Date
llll

PART 1735—GENERAL POLICIES,
TYPES OF LOANS, LOAN REQUIREMENTS—TELECOMMUNICATIONS PROGRAM
Subpart A—General

Subpart E—Basic Requirements for Loan
Approval
1735.50 Administrative findings.
1735.51 Required findings.
1735.52 Findings required for particular loan
purposes.
1735.53–1735.59 [Reserved]

Subpart F—Mortgage Controls on
Acquisitions and Mergers
1735.60 Specific provisions.
1735.61 Approval criteria.
1735.62 Approval of acquisitions and mergers.
1735.63–1735.69 [Reserved]

Subpart G—Acquisitions Involving Loan
Funds
1735.70 Use of loan funds.
1735.71 Nonrural areas.
1735.72 Acquisition agreements.
1735.73 Loan design.
1735.74 Submission of data.
1735.75 Interim financing.
1735.76 Acquisition of affiliates.
1735.77 Release of loan funds, requisitions,
advances.
1735.78–1735.79 [Reserved]

Sec.
1735.1 General statement.
1735.2 Definitions.
1735.3 Availability of forms.
1735.4–1735.9 [Reserved]

Subpart B—Loan Purposes and Basic
Policies
1735.10 General.
1735.11 Area coverage.
1735.12 Nonduplication.
1735.13 Location of facilities and service for
nonrural subscribers.
1735.14 Borrower eligibility.
1735.15 Civil rights.
1735.16 Minimum loan amount.
1735.17 Facilities financed.
1735.18 Additional equity.
1735.19 Mergers and consolidations.
1735.20 Acquisitions.
1735.21 Refinancing loans.
1735.22 Loan security.
1735.23–1735.29 [Reserved]

Subpart C—Types of Loans

Subpart H—Acquisitions or Mergers Not
Involving Additional Loan Funds
1735.80 Submission of data.
1735.81–1735.89 [Reserved]

Subpart I—Requirements for All
Acquisitions and Mergers
1735.90 Preliminary approvals.
1735.91 Location of facilities.
1735.92 Accounting considerations.
1735.93 Notes.
1735.94 Final approval and closing procedure.
1735.95 Unadvanced loan funds.
1735.96–1735.99 [Reserved]

Subpart J—Toll Line Acquisitions

1735.30 Hardship loans.
1735.31 RUS cost-of-money and RTB loans.
1735.32 Guaranteed loans.
1735.33 Variable interest rate loans.
1735.34–1735.39 [Reserved]

1735.100
1735.101

Use of loan funds.
With nonloan funds.

AUTHORITY: 7 U.S.C. 901 et seq., 1921 et seq.,
and 6941 et seq.

Subpart D—Terms of Loans

Subpart A—General

1735.40 General.
1735.41 Notes.
1735.42 [Reserved]
1735.43 Payments on loans.
1735.44 Prepayment premiums.
1735.45 Extension of payments.
1735.46 Loan security documents.
1735.47 Rescissions of loans.
1735.48–1735.49 [Reserved]

§ 1735.1 General statement.
(a) Subparts A through E of this part
set forth the general policies, types of
loans and loan requirements under the
Telephone loan program.
(b) The standard RUS security documents (see 7 CFR 1744 subpart D or

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§ 1735.2

7 CFR Ch. XVII (1–1–03 Edition)

RUS Bulletins 320–4, 320–22, 321–2, 322–2,
323–1, 326–1) contain provisions regarding acquisitions, mergers, and consolidations. Subparts F through J of this
part implement those provisions by
setting forth the policies, procedures,
and requirements for telephone borrowers planning to acquire existing
telephone lines, facilities, or systems
with RUS loan or other funds, or planning to merge or consolidate with another system. This part supersedes all
RUS Bulletins that are in conflict with
it.
(c) Subparts F through J of this part
also detail RUS’s requirements with respect to mergers and acquisitions involving RUS loan funds.
[55 FR 39395, Sept. 27, 1990; 55 FR 41170, Oct.
9, 1990]

§ 1735.2 Definitions.
As used in this part:
Access line means a transmission path
between user terminal equipment and a
switching center that is used for local
exchange service. For multiparty service, the number of access lines equals
the number of lines/paths terminating
on the mainframe of the switching center.
Acquisition means the purchase of another telephone system, lines, or facilities whether by acquiring telephone
plant in service or majority stock interest of one or more organizations.
Acquisition agreement means the
agreement, including a sales agreement, between the seller and purchaser
outlining the terms and conditions of
the acquisition. Acquisition agreements also include any other agreements, such as options and subsidiary
agreements relating to terms of the
transaction.
Administrator means the Administrator of RUS.
Advance of funds means the transferring of funds by RUS to the borrower’s
construction fund.
Appropriated means funds appropriated based on subsidy.
Affiliate means an organization that
directly, or indirectly through one or
more intermediaries, controls or is
controlled by, or is under common control with, the borrower.
Borrower means any organization
which has an outstanding loan made or

guaranteed by RUS, or which is seeking such financing.
Cash distribution means investments,
guarantees, extensions of credit, advances, loans, non-affiliated company
joint ventures, affiliated company investments, and dividend and capital
credit distributions. Not included in
this definition are qualified investments (see 7 CFR part 1744, subpart D).
Composite economic life as applied to
facilities financed by loan funds means
the weighted (by dollar amount of each
class of facility in the loan) average
economic life of all classes of facilities
in the loan.
Consolidation means the combination
of two or more borrower or nonborrower organizations, pursuant to state
law, into a new successor organization
that takes over the assets and assumes
the liabilities of those organizations.
Construction fund means the RUS
Construction Account required by § 2.4
of the standard loan contract into
which all RUS loan funds are advanced.
Depreciation means the loss not restored by current maintenance, incurred in connection with the consumption or prospective retirement of
telecommunications
plant
in
the
course of service from causes which are
known to be in current operation,
against which the company is not protected by insurance, and the effect of
which can be forecast to a reasonable
approach to accuracy.
Economic life as applied to facilities
financed by loan funds, means the
number of years resulting from dividing 100 percent by the depreciation rate
(expressed as a percent) approved by
the regulatory body with jurisdiction
over the telephone service provided by
the borrower for the class of facility involved or, if no approved rate exists, by
the median depreciation rate expressed
as a percent as published by RUS in its
Statistical Report, Rural Telephone
Borrowers for all RUS and RTB borrowers for that class of facility.
Exchange access means the offering of
access to telephone exchange services
or facilities for the purpose of the
origination or termination of telephone
toll services.
Feasibility study means the pro forma
financial analysis performed by RUS to

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Rural Utilities Service, USDA

§ 1735.2

determine the economic feasibility of a
loan. See 7 CFR part 1737.
Forecast period means the time period
beginning on the date (base date) of the
borrower’s balance sheet used in preparing the feasibility study and ending
on a date equal to the base date plus
the number of years estimated in the
feasibility study for completion of the
project. Feasibility projections are
usually for 5 years, see § 1737.70(a) of
this chapter. For example, the forecast
period for a loan based on a December
31, 1990 balance sheet and having a 5year estimated project completion
time is the period from December 31,
1990 to December 31, 1995.
Funded reserve means a separate asset
account, approved by RUS, consisting
of any or all of the following:
(1) Federal government securities
purchased in the name of the borrower;
(2) Other securities issued by an institution whose senior unsecured debt
obligations are rated in any of the top
three categories by a nationally recognized rating organization; or
(3) Cash.
GFR means the RUS general field
representative.
Guaranteed loan means a loan guaranteed by RUS under section 306 of the
RE Act bearing interest at a rate
agreed to by the borrower and the lender.
Hardship loan means a loan made by
RUS under section 305(d)(1) of the RE
Act bearing interest at a rate of 5 percent per year.
Interim financing means funding for a
project which RUS has acknowledged
could be included in a loan, should said
loan be approved, but for which RUS
funds have not yet been made available. See 7 CFR part 1737, subpart E.
Loan means any loan made or guaranteed by RUS.
Loan contract means the loan agreement between RUS and the borrower,
including all amendments thereto.
Loan funds means funds provided by
RUS through direct or guaranteed
loans.
Local exchange carrier (LEC) means an
organization that is engaged in the
provision of telephone exchange service
or exchange access.
Majority noteholders means the holder
or holders of a majority in principal

amount of the notes outstanding at a
particular time.
Merger means the combining, pursuant to state law, of one or more borrower or nonborrower organizations
into an existing survivor organization
that takes over the assets and assumes
the liabilities of the merged organizations. While the terms merger and consolidation have different meanings, for
the purpose of this part, ‘‘mergers’’
also include consolidations as defined
above. Furthermore, ‘‘mergers’’ also
include acquisitions where the acquired systems, lines, or facilities and
the acquiring system are operated as
one system.
Mobile
telecommunications
service
means radio communication voice
service between mobile and land or
fixed stations, or between mobile stations.
Modernization
Plan
(State
Telecommunications
Modernization
Plan)
means a State plan, which has been approved by RUS, for improving the telecommunications network of those telecommunications providers covered by
the plan. A Modernization Plan must
conform to the provisions of 7 CFR
1751, subpart B.
Mortgage means the security agreement between RUS and the borrower,
including any amendments and supplements thereto.
Net worth means the sum of the balances of the following accounts of the
borrower:
Account names
(1)
(2)
(3)
(4)
(5)

Number

Capital stock .....................................................
Additional paid-in capital ..................................
Treasury stock ..................................................
Other capital .....................................................
Retained earnings ............................................

Note: For nonprofit organizations, owners’ equity is shown
in subaccounts of 4540 and 4550. All references regarding
account numbers are to the Uniform System of Accounts (47
CFR part 32).

Public switched network means any
common carrier switched network,
whether by wire or radio, including
local exchange carriers, interexchange
carriers, and mobile telecommunications service providers, that use the
North American Numbering Plan in
connection with the provision of
switched services.

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4520
4530
4540
4550

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§ 1735.2

7 CFR Ch. XVII (1–1–03 Edition)

RE Act means the Rural Electrification Act of 1936, as amended (7 U.S.C.
901 et seq.).
RUS means the Rural Utilities Service, an agency of the United States Department of Agriculture, successor to
the Rural Electrification Administration.
RUS cost-of-money loan means a loan
made under section 305(d)(2) of the RE
Act bearing an interest rate as determined under § 1735.31(c). RUS cost-ofmoney loans are made concurrently
with RTB loans.
RTB loan means a loan made by the
Rural Telephone Bank (RTB) under
section 408 of the RE Act bearing an interest rate as determined under 7 CFR
1610.10. RTB loans are made concurrently with RUS cost-of-money loans.
Rural area means any area of the
United States, its territories and insular possessions (including any area
within the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau) not
included within the boundaries of any
incorporated or unincorporated city,
village or borough having a population
exceeding 5,000 inhabitants. The population figure is obtained from the most
recent data available, such as from the
Bureau of the Census and Rand
McNally and Company. For purposes of
the ‘‘rural area’’ definition, the character of an area is determined as of a
time the initial loan for the system is
made.
Specialized telecommunications service
means any telephone service other
than telephone exchange service, exchange access, or mobile telecommunications service.
Subscriber means the same as access
line.
Survivor means (1) the successor corporation formed by the consolidation
of one or more borrowers, (2) the corporation remaining after completion of
a merger involving one or more borrowers, and (3) a corporation assuming
all or a portion of an RUS loan in connection with an acquisition.
Telecommunications means the transmission or reception of voice, data,
sounds, signals, pictures, writings, or
signs of all kinds, by wire, fiber, radio,
light, or other visual or electromagnetic means.

Telephone exchange service means: (1)
Service provided primarily to fixed locations within a telephone exchange,
or within a connected system of telephone exchanges within the same exchange area operated to furnish to subscribers intercommunicating service of
the character ordinarily furnished by a
single exchange, and which is covered
by the exchange service charge; or
(2) Comparable service provided
through a system of switches, transmission equipment, or other facilities
(or combination thereof) by which a
subscriber can originate and terminate
a telecommunications service.
Telephone service means any communication service for the transmission or
reception of voice, data, sounds, signals, pictures, writing, or signs of all
kinds by wire, fiber, radio, light, or
other visual or electromagnetic means
and includes all telephone lines, facilities and systems to render such service. It does not mean:
(1) Message telegram service;
(2) Community antenna television
system services or facilities other than
those intended exclusively for educational purposes; or
(3) Radio broadcasting services or facilities within the meaning of section
3(o) of the Communications Act of 1934,
as amended.
Times Interest Earned Ratio (TIER)
means the ratio of a borrower’s net income (after taxes) plus interest expense, all divided by interest expense.
For the purpose of this calculation, all
amounts will be annual figures and interest expense will include only interest on debt with a maturity greater
than one year.
Total assets means the sum of the balances of the following accounts of the
borrower:
Account names
(1) Current assets .................
(2) Noncurrent Assets ...........
(3) Total telecommunications
plant.
(4) Less: Accumulated depreciation.
(5) Less: Accumulated amortization.

Number
1100s through 1300s.
1400s through 1500s.
2001 through 2007.
3100 through 3300s.
3400 through 3600s.

Note: All references regarding account numbers are to the
Uniform System of Accounts (47 CFR part 32).

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Rural Utilities Service, USDA

§ 1735.12

[54 FR 13351, Apr. 3, 1989; 54 FR 16194, Apr. 21,
1989. Redesignated at 55 FR 39395, Sept. 27,
1990, as amended at 56 FR 26596, June 10, 1991;
58 FR 66253, Dec. 20, 1993; 62 FR 46869, Sept.
5, 1997; 65 FR 42619, July 11, 2000; 65 FR 54402,
Sept. 8, 2000]

§ 1735.3

Availability of forms.

Single copies of RUS forms and publications cited in this part are available
from Program Support Regulatory
Analysis, Rural Utilities Service,
STOP 1522, 1400 Independence Ave.,
SW., Washington, DC 20250–1522. These
RUS forms and publications may be reproduced. The terms ‘‘RUS form’’,
‘‘RUS standard form’’, and ‘‘RUS specification’’ have the same meanings as
the terms ‘‘REA form’’ ‘‘REA standard
form’’, and ‘‘REA specification’’, respectively, unless otherwise indicated.
[54 FR 13351, Apr. 3, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990, and amended at 59
FR 66441, Dec. 27, 1994; 62 FR 46870, Sept. 5,
1997]

§§ 1735.4–1735.9

[Reserved]

Subpart B—Loan Purposes and
Basic Policies
SOURCE: 54 FR 13351, Apr. 3, 1989, unless
otherwise noted. Redesignated at 55 FR 39395,
Sept. 27, 1990.

§ 1735.10

General.

(a) The Rural Utilities Service (RUS)
makes loans to furnish and improve
telephone service in rural areas. Loans
made or guaranteed by the Administrator of RUS will be made in conformance with the Rural Electrification Act
of 1936 (RE Act), as amended (7 U.S.C.
901 et seq.), and 7 CFR chapter XVII.
RUS provides borrowers specialized and
technical accounting, engineering, and
other managerial assistance in the construction and operation of their facilities when necessary to aid the development of rural telephone service and to
protect loan security.
(b) RUS will not make hardship
loans, RUS cost-of-money loans, or
RTB loans for any wireline local exchange service or similar fixed-station
voice service that, in RUS’ opinion, is
inconsistent with the borrower achieving the requirements stated in the
State’s telecommunication moderniza-

tion plan within the time frame stated
in the plan (see 7 CFR part 1751, subpart B), unless RUS has determined
that achieving the requirements as
stated in such plan is not technically
or economically feasible.
(c) A borrower receiving a loan to
provide mobile telecommunications
services or special telecommunications
services shall be considered to be participating in the state telecommunications plan (TMP) with respect to the
particular loan so long as the loan
funds are not used in a manner that, in
RUS’ opinion, is inconsistent with the
borrower achieving the goals set forth
in the plan, except that a borrower
must comply with any portion of a
TMP made applicable to the borrower
by a state commission with jurisdiction.
(d) RUS will not deny or reduce a
loan or an advance of loan funds based
on a borrower’s level of general funds.
(e) No fees or charges are assessed for
any type of loan or guarantee provided
by RUS or the Rural Telephone Bank
(RTB).
(f) The Administrator may use consultants funded by the borrower for financial, legal, engineering, and other
technical advice in connection with the
review of a borrower’s loan application.
[58 FR 66253, Dec. 20, 1993, as amended at 59
FR 17464, Apr. 13, 1994; 65 FR 42619, July 11,
2000; 65 FR 54403, Sept. 8, 2000]

§ 1735.11

Area coverage.

Borrowers must make adequate telephone service available to the widest
practical number of rural subscribers
during the life of the loan. Both the nature of the service area and the cost
per subscriber must be fully considered. The borrower must seek to provide service to all interested potential
subscribers in the service area. Borrowers are not required to extend service in situations where the costs would
be exorbitant. The loan contract shall
contain appropriate provisions to effect this requirement. See 7 CFR
1737.11(a), Preapplication Determinations: Area to be Served.
§ 1735.12

Nonduplication.

(a) In states having a state regulatory body with authority to regulate

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§ 1735.12

7 CFR Ch. XVII (1–1–03 Edition)

telephone service and to require certificates of convenience and necessity,
the borrower must obtain such a certificate before RUS will make a loan.
Facilities or services not specifically
covered by such certificate will be subject to the provisions of § 1735.12(b).
(b) In states where there is no such
regulatory body, a loan will not be
made unless the Administrator determines that no duplication of lines, facilities, or systems already providing
reasonably adequate services shall result from such a loan.
(c) RUS shall consider the following
criteria for any wireline local exchange
service or similar fixed-station voice
service provided by a local exchange
carrier (LEC) in determining whether
such service is reasonably adequate:
(1) The LEC is providing area coverage as described in § 1735.11.
(2) The LEC is providing all oneparty service or, if the State commission has mandated a lower grade of
service, the LEC is eliminating that
service in accordance with the requirements of the Telecommunications Act
of 1996, 47 U.S.C. 151 et seq.
(3) The LEC’s network is capable of
providing transmission and reception
of data at a rate of at least 1,000,000
bits per second (1 Mbps) with reasonable modification to any subscriber
who requests it.
(4) The LEC makes available custom
calling features (at a minimum, call
waiting, call forwarding, abbreviated
dialing, and three-way calling).
(5) The LEC is able to provide E911
service to all subscribers, when requested by the government entity responsible for this service.
(6) The LEC is able to offer local
service with blocked toll access to
those subscribers who request it.
(7) The LEC’s network is capable of
accommodating Internet access at
speeds of at least 28,800 bits per second
(28.8 Kbps) via modem dial-up from any
subscriber location.
(8) There is an absence of frequent
service interruptions.
(9) The LEC is interconnected with
the public switched network.
(10) No Federal or State regulatory
commission having jurisdiction has determined that the quality, availability,

or reliability of the service provided is
inadequate.
(11) Services are provided at reasonably affordable rates.
(12) Any other criteria the Administrator determines to be applicable to
the particular case.
(d) RUS shall consider the following
criteria for any of mobile telecommunications service in determining whether such service is reasonably adequate:
(1) The extent to which area coverage
is being provided as described in 7 CFR
1735.11.
(2) Clear and reliable call transmission is provided with sufficient
channel availability.
(3) The mobile telecommunications
service signal strength is at least
¥85dBm
(decibels
expressed
in
miliwatts).
(4) The mobile telecommunications
service is interconnected with the public switched network.
(5) Mobile 911 service is available to
all subscribers, when requested by the
local government entity responsible for
this service.
(6) No Federal or State regulatory
commission having jurisdiction has determined that the quality, availability,
or reliability of the service provided is
inadequate.
(7) Mobile telecommunications service is not provided at rates which
render the service unaffordable to a
significant number of rural persons.
(8) Any other criteria the Administrator determines to be applicable to
the particular case.
(e) RUS does not consider mobile
telecommunications service a duplication of existing wireline local exchange
service or similar fixed-station voice
service. RUS may finance mobile telecommunications systems designed to
provide eligible services in rural areas
under the Rural Electrification Act
even though the services provided by
the system may incidentally overlap
services of existing mobile telecommunications providers.
(f) RUS shall consider the following
criteria for any provider of a specialized telecommunications service in determining whether such service is reasonably adequate:

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Rural Utilities Service, USDA

§ 1735.14

(1) The provider of a specialized telecommunications service is providing
area coverage as described in § 1735.11.
(2) An adequate signal strength is
provided throughout the largest practical portion of the service area.
(3) There is an absence of frequent
service interruptions.
(4) The quality and variety of service
provided is comparable to that provided in nonrural areas.
(5) The service provided complies
with industry standards.
(6) No Federal, State, or local regulatory commission having jurisdiction
has determined that the quality, availability, or reliability of the service
provided is inadequate.
(7) Services are provided at reasonably affordable rates.
(8) Any other criteria the Administrator determines to be applicable to
the particular case.
[54 FR 13351, Apr. 3, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990, as amended at 65 FR
42619, July 11, 2000; 65 FR 54403, Sept. 8, 2000]

§ 1735.13 Location of facilities and
service for nonrural subscribers.
(a) When it is determined by the Administrator to be necessary in order to
furnish or improve telephone service in
rural areas, loans may be made for the
improvement, expansion, construction,
acquisition, and operation of telephone
lines, facilities, or systems without regard to their geographical location.
(b) To the greatest extent practical,
loans are limited to providing telephone facilities that serve subscribers
in rural areas. In order to furnish and
improve service to rural subscribers it
may at times be necessary to provide
loan funds to finance telephone facilities which (1) will also serve nonrural
subscribers, or (2) are located in
nonrural areas. Loans may be approved
to finance such facilities if the Administrator determines, on a case-by-case
basis, that (i) the primary purpose of
the loan is to provide service to rural
areas and (ii) the financing of facilities
for nonrural subscribers is necessary
and incidental to furnishing or improving telephone service in rural areas.
(c) Loan funds may be approved for
facilities to serve nonrural subscribers
only if (1) the principal purpose of the
loan is to furnish and improve rural

service and (2) the use of loan funds to
serve nonrural subscribers is necessary
and incidental to the principal purpose
of the loan. The following are examples
of purposes for which such loans may
be made (such loans are not limited to
these examples):
(1) In the case of construction of a
new system, if the loan would not be
economically feasible and self-liquidating unless the nonrural as well as
the rural portions of the telephone
service area are included in the proposed system, the loan may include
funds for both portions.
(2) Where the acquisition of an existing system located in and serving a
nonrural area is necessary to serve as
the nucleus of an expanded system to
furnish area coverage service in rural
areas, the loan may include funds to finance the acquisition.
(3) When a system is being converted
to modern service for rural subscribers,
the loan may include funds for the conversion of the nonrural facilities, if the
rural service will be improved as a result of such nonrural improvements
and it is impractical to finance and
serve the nonrural and rural areas separately.
(4) A loan may include funds to serve
nonrural subscribers located in community centers frequently called by
the rural subscribers if the construction to serve such nonrural subscribers
will be incidental to, and contribute
substantially to, the provision of adequate service for the rural subscribers.
(d) RUS may also approve financing
for facilities to serve nonrural areas if,
at the time financing was first approved by RUS:
(1) The nonrural area had a population of 1,500 or less when first financed by RUS and that financing was
approved prior to November 1, 1993; or
(2) The nonrural area had a population of 5,000 or less when first financed by RUS and that financing was
approved on or after November 1, 1993.
[54 FR 13351, Apr. 3, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990, as amended at 58 FR
66253, Dec. 20, 1993]

§ 1735.14

Borrower eligibility.

(a) RUS makes loans to:

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§ 1735.15

7 CFR Ch. XVII (1–1–03 Edition)

(1) Entities providing, or who may
hereafter provide, telephone service in
rural areas;
(2) Public bodies providing telephone
service in rural areas as of October 28,
1949; and
(3) Cooperative, nonprofit, limited
dividend or mutual associations.
(b) RUS does not make loans to individuals.
(c) RUS gives preference to those borrowers (including initial loan applicants) already providing telephone
service in rural areas, and to cooperative, nonprofit, limited dividend, or
mutual associations. To be eligible for
a loan, a borrower:
(1) Must have sufficient authority to
carryout the purposes of the RE Act;
and
(2) Must be incorporated or a limited
liability company.
[58 FR 66253, Dec. 20, 1993, as amended at 64
FR 50429, Sept. 17, 1999; 65 FR 42619, July 11,
2000]

§ 1735.15 Civil rights.
Borrowers are required to comply
with certain regulations on nondiscrimination and equal employment
opportunity. See RUS Bulletin 320–19
and RUS Bulletin 320–15, respectively.
§ 1735.16 Minimum loan amount.
Recognizing plant costs, the borrower’s cost of system design, and
RUS’s administrative costs, RUS will
not consider applications for loans of
less than $50,000.
§ 1735.17 Facilities financed.
(a) RUS makes hardship and guaranteed loans to finance the improvement,
expansion, construction, acquisition,
and operation of systems or facilities
(including station apparatus owned by
the borrower, headquarters facilities,
and vehicles not used primarily in construction) to furnish and improve telephone service in rural areas, except as
noted under paragraph (c) of this section.
(b) RUS makes concurrent RUS costof-money and RTB loans to finance the
improvement, expansion, construction,
and acquisition of systems or facilities
(excluding station apparatus owned by
the borrower, headquarters facilities,
and vehicles not used primarily in con-

struction) to furnish and improve telephone service in rural areas, except as
noted under paragraph (c) of this section.
(c) RUS will not make any type of
loan to finance the following items:
(1) Station apparatus (including PBX
and key systems) not owned by the
borrower and any associated inside wiring;
(2) Certain duplicative facilities, see
§ 1735.12;
(3) Facilities to provide service other
than 1-party; and
(4) System designs or facilities to
provide service that cannot withstand
or are not designed to minimize damage caused by storms and other natural
catastrophes, including, but not limited to hurricanes, floods, tornadoes,
mudslides, lightning, windstorms, hail,
fire, and smoke, unless an alternate design or facility for modern telecommunications is more economically
or technically feasible. Economic and
technical feasibility will be determined
using total long range economic costs
and risk analysis.
(d) Generally, RUS will not make a
loan to another entity to provide the
same telecommunications service in an
area served by an incumbent RUS telecommunications borrower providing
such service. RUS may, however, consider an application for a loan to provide the same type of service being provided by an incumbent RUS borrower if
the Administrator determines that the
incumbent borrower is unable to meet
its obligations to the government, including the obligation to provide service set forth in its loan documents and
to repay its loans.
(e) If an unadvanced loan, or portion
thereof, is rescinded, a new loan shall
not be made for the same purposes as
in the rescinded loan, except as provided in § 1735.47.
[54 FR 13351, Apr. 3, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990, and amended at 58
FR 66253, Dec. 20, 1993; 62 FR 46870, Sept. 5,
1997; 65 FR 42619, July 11, 2000]

§ 1735.18 Additional equity.
If determined by the Administrator
to be necessary for loan security, a borrower applying for an initial loan shall
increase its net worth as a percentage
of assets to the highest level recorded,

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Rural Utilities Service, USDA

§ 1735.22

not to exceed 40 percent, at the end of
any calendar quarter in the period beginning 2 years prior to the receipt by
RUS of the borrower’s loan application
form (RUS Form 490). This restoration
to the higher level of net worth shall
take place before RUS will determine
the feasibility of the proposed loan.
§ 1735.19 Mergers and consolidations.
RUS does not make loans for the sole
purpose of merging or consolidating
telephone organizations. After a merger or consolidation, RUS will consider
making loans to the telephone system
to finance the improvement or extension of telephone service in rural areas.
See RUS Bulletins 320–4, 321–2, 325–1,
and 326–1.
§ 1735.20 Acquisitions.
(a) RUS finances the acquisition by a
borrower of another system, lines, or
facilities only when the acquisition is
necessary and incidental to furnishing
or improving rural telephone service.
See 7 CFR 1735.13.
(b) RUS determines the amount it
will lend for each acquisition. If the acquisition price exceeds this amount,
the borrower shall provide the remainder.
(c) For additional policies on acquisitions, see subpart F through J of this
part.
[54 FR 13351, Apr. 3, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990, and amended at 58
FR 66253, Dec. 20, 1993]

§ 1735.21 Refinancing loans.
(a) Hardship loans and guaranteed
loans may include funds to refinance
outstanding indebtedness of corporations furnishing telephone service
when such refinancing is necessary and
incidental to furnishing or improving
telephone service in rural areas. Refinancing may not constitute more than
40 percent of the loan.
(b) Loans for refinancing are not
made solely to enable borrowers to obtain a lower interest rate or a longer
amortization period. RUS requires borrowers, to the greatest extent possible,
to liquidate outstanding indebtedness
through the use of nonloan funds.
(c) If deemed necessary by RUS to
provide itself with adequate security,
RUS will consider loans for refinancing

outstanding indebtedness secured by a
lien on property offered as security for
the loan, if the property covered by the
lien is integral to the operation of the
system.
(d) RUS will consider loans for refinancing when the borrower would otherwise be unable to meet payments on
both the outstanding indebtedness and
the loan as they become due.
(e) RUS may consider loans for refinancing in other situations.
[54 FR 13351, Apr. 3, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990, and amended at 58
FR 66254, Dec. 20, 1993]

§ 1735.22 Loan security.
(a) RUS makes loans only if, in the
judgment of the Administrator, the security therefor is reasonably adequate
and the loan will be repaid within the
time agreed. See 7 CFR 1735.18 and 7
CFR 1735.51.
(b) RUS generally requires that borrowers provide it with a first lien on all
of the borrower’s property. See 7 CFR
1735.46.
(c) In the case of loans that include
the financing of telephone facilities
that do not constitute self-contained
operating systems or units (such as
lines switched by other systems), the
borrower shall, in addition to the mortgage lien on all of the borrower’s telephone facilities, furnish adequate assurance, in the form of contractual or
other security arrangements, that continuous and efficient telephone service
will be rendered.
(d) The borrower shall provide RUS
with a satisfactory Area Coverage Survey. See 7 CFR 1737.30 and 1737.31.
(e) RUS makes loans only if the borrower’s entire system, including the facilities to be constructed with the proceeds of the loan, is economically feasible, as determined by RUS. In addition, RUS considers a system to be feasible only if the system, in addition to
being feasible in all other respects, is
year 2000 compliant or if the borrower
provides RUS with a certification, satisfactory to RUS, that the system will
be year 2000 compliant at a reasonable
time before December 31, 1999. Year 2000
compliant means that product performance and function are not affected by
dates before, during, and after the year
2000.

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§§ 1735.23–1735.29

7 CFR Ch. XVII (1–1–03 Edition)

(f) For purposes of determining compliance with TIER requirements, unless a borrower whose existing mortgage contains TIER maintenance requirements notifies RUS in writing differently, RUS will apply the requirements described in paragraph (g) of
this section to the borrower regardless
of the provisions of the borrower’s existing mortgage.
(g) For loans approved after October
6, 1997 loan contracts and mortgages
covering hardship loans, RUS cost-ofmoney loans, RTB loans, and guaranteed loans will contain a provision requiring the borrower to maintain a
TIER of at least 1.0 during the Forecast Period. At the end of the Forecast
Period, the borrower shall be required
to maintain, at a minimum, a TIER at
least equal to the projected TIER determined by the feasibility study prepared in connection with the loan, but
at least 1.0 and not greater than 1.5.
(h) Nothing in this section shall affect any rights of supplemental lenders
under the RUS mortgage, or other
creditors of the borrower, to limit a
borrower’s TIER requirement to a level
above that established in paragraph (g)
of this section.
(i) A borrower will not be required to
raise its TIER as a condition for receiving a loan. Additional financial, investment, and managerial controls appear
in the loan contract and mortgage required by RUS.
[54 FR 13351, Apr. 3, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990, as amended at 56 FR
26597, June 10, 1991; 58 FR 66254, Dec. 20, 1993;
62 FR 46870, Sept. 5, 1997; 63 FR 45678, Aug. 27,
1998]

§§ 1735.23–1735.29

[Reserved]

Subpart C—Types of Loans
§ 1735.30 Hardship loans.
(a) RUS makes hardship loans under
section 305(d)(1) of the RE Act. These
loans bear interest at a rate of 5 percent per year. To qualify for a hardship
loan on or after November 1, 1993, a
borrower must meet each of the following requirements:
(1) The average number of proposed
subscribers per mile of line in the service area of the borrower is not more
than 4;

(2) The borrower has a projected
TIER (including the proposed loan or
loans) of at least 1.0, but not greater
than 3.0, as determined by the feasibility study prepared in connection
with the loan, see 7 CFR part 1737, subpart H; and
(3) The Administrator has approved
and the borrower is participating in a
telecommunications
modernization
plan for the state, see 7 CFR part 1751,
subpart B.
(b)(1) Hardship loan funds shall not
be used to finance facilities located in
any exchange of the borrower that has:
(i) More than 1,000 existing subscribers; and
(ii) An average number of proposed
subscribers per mile of line greater
than 17.
(2) Those facilities may, however, be
financed with concurrent RUS cost-ofmoney and RTB loans or a guaranteed
loan if the borrower is eligible for such
financing.
(c) The Administrator may waive the
TIER requirement in paragraph (a)(2)
of this section in any case in which the
Administrator determines, and sets
forth the reasons therefor in writing,
that the requirement would prevent
emergency restoration of the telephone
system of the borrower or result in severe hardship to the borrower.
(d) In order to fairly and equitably
approve hardship loans to ensure that
borrowers most in need receive hardship financing first, RUS will prioritize
for approval all applications qualifying
for hardship loans. The criteria in this
paragraph will be used by the Administrator to rank, from high to low, applications that have been determined to
qualify for hardship financing. Subject
to the availability of funds, applications receiving the highest number of
points will be selected for loan approval each fiscal year quarter (the application with the most points will be
approved first, the second highest next,
etc.) The following ranking methodology and loan approval conditions
apply:
(1) Ranking criteria.Borrowers will receive points based on each of the following criteria applicable to the proposed loan:
(i) Forecasted Average Number of Subscribers Per Mile of Line (Density). The

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Rural Utilities Service, USDA

§ 1735.30

number of points assigned to a borrower will be the value 4 less the value
of the borrower’s forecasted density as
determined by the Feasibility Study
prepared in connection with the loan
(i.e., if a borrower’s forecasted system
density is 2.75, the borrower would receive 4 less 2.75 points, or 1.25 points).
(ii) Forecasted TIER. The number of
points assigned to a borrower will be
the value 3 less the value of the borrower’s forecasted TIER as determined
by the Feasibility Study prepared in
connection with the loan (i.e., if a borrower’s forecasted TIER is 1.75, the
borrower would receive 3 less 1.75
points, or 1.25 points).
(iii) Unserved Territories. Borrowers
will receive points for loan funds included in the application to provide
telephone service in areas previously
unserved because it was considered
cost prohibitive (for example, high
costs resulting from the terrain, remoteness, or system design). In particular, borrowers will receive one
tenth of a point, up to a maximum of 2
points, for each subscriber added (in
connection with the loan) that currently resides in an unserved area.
(iv) Plant Modernization. Borrowers
will receive 1 point for loan funds included in the application for at least
one of the following basic plant modernizations or system improvements:
(A) Providing digital switching capabilities where those capabilities did not
previously exist; and/or
(B) Upgrading to equal access; and/or
(C) Conversion of service to 1-party
making an entire exchange all 1-party
service.
(v) Distance Learning and Medical
Link Facilities. Borrowers will receive 2
points for loan funds included in the
application for the purpose of providing
distance learning or medical link
transmission facilities. If loan funds
are included for both distance learning
and medical link transmission facilities, borrowers will receive 3 points.
(See 7 CFR part 1703 for definitions of
distance learning and medical link.)
(vi) Time Factor. If a borrower’s application has been ranked but cannot be
approved due to the lack of funds available for loans in that quarter, the borrower will receive .25 points for each

quarter in which its loan is pending but
not approved.
(2) Ranking and approval of loans. Eligible loan applications (satisfying the
requirements of 7 CFR 1737.21) will be
ranked during the quarter in which the
application is received. If an application is received in which insufficient
time remains in that quarter to process
and rank the application, it will be
ranked in the next quarter. At the beginning of the quarter and as soon as
practical, RUS will approve all eligible
hardship loans ranked in the previous
quarter to the extent loan funds are
available, beginning with the borrowers that received the highest number of points and working downwards.
Any qualified application that is not
approved due to the lack of funds will
be carried forward to the next quarter
and ranked with all other eligible hardship loan applications in that quarter.
Upon completion of the ranking and
approval of loans, all borrowers will be
informed in writing of the status of
their loan applications.
(e) Optimal use of funds. RUS retains
the right to limit the size of hardship
loans made to individual borrowers in
order to more equitably distribute the
amount of hardship funds appropriated
among the greatest number of qualified
borrowers. Generally, no more than 10
percent of the funds appropriated in
any fiscal year may be loaned to a single borrower. In addition, RUS retains
the right to approve loans to borrowers
that are ranked lower in the priority
system, or without regard to when the
application was received and ranked, if
it is necessary to:
(1) Expedite restoration of service
outages due to natural disasters; or
(2) Maximize the use of all available
hardship funds appropriated for loans
in that fiscal year.
(f) On request of any borrower who is
eligible for a hardship loan for which
funds are not available, the borrower
shall be considered to have applied for
concurrent RUS cost-of-money and
RTB loans under sections 305 and 408,
respectively, of the RE Act.
(g) Hardship loans may be made simultaneously with concurrent RUS
cost-of-money and RTB loans or guaranteed loans.
[58 FR 66254, Dec. 20, 1993]

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§ 1735.31

7 CFR Ch. XVII (1–1–03 Edition)

§ 1735.31 RUS cost-of-money and RTB
loans.
(a) RUS makes cost-of-money loans,
under section 305(d)(2) of the RE Act,
concurrently with RTB loans made
under section 408 of the RE Act. To
qualify for concurrent RUS cost-ofmoney and RTB loans on or after November 1, 1993, a borrower must meet
each of the following requirements:
(1) The average number of proposed
subscribers per mile of line in the service area of the borrower is not more
than 15, or the borrower has a projected
TIER (including the proposed loans) of
at least 1.0, but not greater than 5.0, as
determined by the feasibility study
prepared in connection with the loans,
see 7 CFR part 1737, subpart H; and
(2) The Administrator has approved
and the borrower is participating in a
telecommunications
modernization
plan for the state, see 7 CFR part 1751,
subpart B.
(b) The loan amounts from each program (RUS cost-of-money and RTB, including amounts for class B stock) will
be proportionate to the total amount
of funds appropriated for the fiscal
year for RUS cost-of-money loans and
RTB loans. To determine the RUS costof-money portion, the total loan
amount will be multiplied by the ratio
of RUS cost-of-money funds appropriated for the fiscal year to the sum of
RUS cost-of-money and RTB funds appropriated for the fiscal year in which
the loan is approved. The same method
would be used to calculate the RTB
portion (see 7 CFR 1610.6(b)). If during
the fiscal year the amount of funds appropriated changes, the ratio will be
adjusted accordingly and applied only
to those loans approved afterwards.
(c) The RUS cost-of-money loan shall
bear interest as described in paragraphs (c)(1) and (c)(2) of this section
(the actual rate of interest on the RTB
loan shall be determined as provided in
7 CFR 1610.10):
(1) Each advance of funds included in
RUS cost-of-money loans shall bear interest at a rate (the ‘‘Cost of Money Interest Rate’’) equal to the current cost
of money to the Federal Government
for loans of a similar maturity. The
Cost of Money Rate is determined when
the funds are advanced to the borrower
but cannot exceed 7 percent per year.

(2) RUS shall use the Federal Treasury Statistical Release (the ‘‘Statistical Release’’) issued by the United
States Treasury to determine the interest rate for each advance of RUS
cost-of-money loan funds. Generally,
the Statistical Release is issued each
Monday to cover the preceding week.
RUS shall determine the Cost of Money
Interest Rate as follows:
(i) Each advance shall bear the interest rate stated in the applicable Statistical Release for Treasury constant
maturities with a maturity similar to
that of the advance.
(ii) RUS shall determine the interest
rate for an advance bearing a maturity
other than those stated in the applicable Statistical Release by straight-line
interpolation between the next higher
and next lower stated maturities.
(iii) The first Statistical Release published after the date of an advance
shall apply to that advance.
(iv) If the interest rate determined
under paragraph (c)(2)(i) or (c)(2)(ii) of
this section is higher than 7 percent,
then the advance shall bear interest at
the rate of 7 percent per year.
(v) Advances with maturities greater
than 30 years shall bear interest at the
rate stated in the applicable Statistical Release for 30-year maturities.
(vi) RUS may use an alternative
method to determine the Cost of
Money Interest Rate if the Treasury
ceases to issue the Statistical Release
or changes its format or frequency of
issue so that it is no longer appropriate
for use in the manner described in
paragraph (c)(2) of this section. In this
eventuality, RUS shall immediately
notify all borrowers with unadvanced
RUS cost-of-money loan funds. RUS
may, with the borrower’s consent, determine the Cost of Money Interest
Rate on a case-by-case basis for subsequent advances of RUS cost-of-money
loan funds but may also decide, in its
discretion, that it is unable to continue
advancing funds until an alternative
method is in effect.
(vii) Refer to § 1735.43(a) for additional information on maturities of
RUS loans.
(viii) RUS shall provide borrowers
with prompt written confirmation of
the Cost of Money Interest Rate borne

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Rural Utilities Service, USDA

§ 1735.32

by each advance of funds included in a
RUS cost-of-money loan.
(d) Generally, no more than 10 percent of lending authority from appropriations in any fiscal year for RUS
cost-of-money and RTB loans may be
loaned to a single borrower. RUS will
publish by notice in the FEDERAL REGISTER the dollar limit that may be
loaned to a single borrower in that particular fiscal year based on approved
RUS and RTB lending authority.
(e) On request of any borrower who is
eligible for concurrent RUS cost-ofmoney and RTB loans for which funds
are not available, the borrower shall be
considered to have applied for a loan
guarantee under section 306 of the RE
Act.
(f) Concurrent RUS cost-of-money
and RTB loans may be made simultaneously with hardship loans or guaranteed loans.
[58 FR 66255, Dec. 20, 1993, as amended at 62
FR 46870, Sept. 5, 1997]

§ 1735.32 Guaranteed loans.
(a) General. Loan guarantees under
this section will be considered for only
those borrowers specifically requesting
a guarantee. Borrowers may also specify that the loan to be guaranteed shall
be made by the Federal Financing
Bank (FFB). RUS provides loan guarantees pursuant to section 306 of the
RE Act. Guaranteed loans may be
made simultaneously with hardship
loans or concurrent RUS cost-of-money
and RTB loans. No fees or charges are
assessed for any guarantee of a loan
provided by RUS. In view of the Government’s guarantee, RUS generally
obtains a first lien on all assets of the
borrower (see § 1735.46).
(b) Requirements. To qualify for a
guaranteed loan, a borrower must have
a projected TIER (including the proposed loan or loans) of at least 1.2 as
determined by the feasibility study
prepared in connection with the loan.
In addition, a borrower must meet all
requirements set forth in the regulations applicable to a loan made by RUS
with the exception that it is not required to participate in a state telecommunications modernization plan
and is not subject to a subscriber per
mile eligibility requirement, as provided in § 1735.31(a).

(c) Net worth requirements. RUS generally requires that borrowers seeking
guaranteed loans have a net worth in
excess of 20 percent of assets. RUS will,
however, consider loan guarantees for
borrowers with a net worth less than 20
percent.
(d) Full amount guaranteed. Loans are
guaranteed in the full amount of principal and interest. Because of the Government’s full faith and credit 100 percent guarantee of these loans, only
RUS obtains a mortgage on the borrower’s assets.
(e) Federal Register notice. After RUS
has reviewed an application and determined that it shall consider guaranteeing a loan for the proposed project
and if the borrower has not specified
that the loan be made from the FFB,
RUS shall publish a notice in the FEDERAL REGISTER. The Notice will include
a description of the proposed project,
the estimated total cost, the estimated
amount of the guaranteed loan, a
statement that the Federal Financing
Bank (FFB) has a standing loan commitment agreement with RUS, and the
name and address of the borrower to
which financing proposals may be submitted.
(f) Qualified lenders. RUS considers
loan guarantees on a case by case basis
for loans made by the FFB and any
other legally organized lending agency
or by a combination of lenders that the
Administrator determines to be qualified to make, hold and service the loan.
‘‘Legally organized lending agency’’
and ‘‘lender’’ include commercial
banks, trust companies, mortgage
banking firms, insurance companies,
and any other institutional investor
authorized by law to loan money. The
borrower is responsible for evaluating
all proposals received from lenders
other than FFB. The borrower furnishes RUS with a report on the evaluations and its choice of proposals.
However, at the request of the borrower, the guaranteed loan shall be
made by the FFB.
(g) Interest rate. Guaranteed loans
shall bear interest at the rate agreed
upon by the borrower and lender. Guaranteed FFB loans shall be at a rate of
interest that is not more than the rate
of interest applicable to other similar

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§ 1735.33

7 CFR Ch. XVII (1–1–03 Edition)

loans then being made or purchased by
FFB.
(h) Condition of guarantee. RUS will
not guarantee a loan if the income
from the loan or the income from obligations issued by the holder of the
loan, when the obligations are created
by the loan, is excluded from gross income for the purpose of chapter I of the
Internal Revenue Code of 1954.
(i) Contract of guarantee. If RUS is
satisfied with the engineering and economic feasibility of the project and approves the borrower’s choice of proposal, subject to the submission of satisfactory financing documents and to
the satisfaction of other pertinent
terms and conditions, RUS will prepare
a contract of guarantee to be executed
by the borrower, the lender, and RUS
within a specified time. The lender, or
its representative, shall have the right
to examine the borrower’s application
and supporting data submitted to RUS
in support of its request for financial
assistance.
(j) Loan servicing. The contract of
guarantee will require that arrangements satisfactory to RUS be made to
service the loan. Required servicing by
the lender will include:
(1) Determining that all prerequisites
to each advance of loan funds by the
lender under the terms of the contract
of guarantee, all financing documents,
and all related security instruments
have been fulfilled. Such determinations may be met by obtaining RUS approval of each advance.
(2) Billing and collecting loan payments from the borrower.
(3) Notifying the Administrator
promptly of any default in the payment of principal and interest on the
loan and submitting a report, as soon
as possible thereafter, setting forth its
views as to the reasons for the default,
how long it expects the borrower will
be in default, and what corrective actions the borrower states it is taking
to achieve a current debt service position.
(4) Notifying the Administrator of
any known violations or defaults by
the borrower under the lending agreement, contract of guarantee, or related
security instruments, or conditions of
which the lender is aware which might

lead to nonpayment, violation, or other
default.
(k) Payments under the contract of
guarantee. Upon receipt of the notification required in § 1735.32(j)(3) of this
section, RUS will pay the lender the
amount in default with interest to the
date of payment. When RUS has made
a payment under a contract of guarantee, it will establish in its accounts
the amount of the payment as due and
payable from the borrower, with interest at the rate of interest specified in
the lending agreement. RUS will work
with the borrower and the lender in an
effort to eliminate the borrower’s default as soon as possible. RUS may also
proceed with other remedies available
under its security instruments.
(l) Pledging of contract of guarantee.
Subject to applicable law, RUS will
consider, on a case by case basis, permitting pledging of the contract of
guarantee in order to facilitate the obtaining of funds by the lending agency
to make the guaranteed loan.
[54 FR 13351, Apr. 3, 1989; 54 FR 16194, Apr. 21,
1989. Redesignated at 55 FR 39395, Sept. 27,
1990, as amended at 56 FR 26597, June 10, 1991;
58 FR 66255, Dec. 20, 1993; 62 FR 46870, Sept.
5, 1997]

§ 1735.33

Variable interest rate loans.

After June 10, 1991, and prior to November 1, 1993, RUS made certain variable rate loans at interest rates less
than 5 percent but not less than 2 percent. For those borrowers that received
variable rate loans, this section describes the method by which interest
rates are adjusted. The interest rate
used in determining feasibility is the
rate charged to the borrower until the
end of the Forecast Period for that
loan. At the end of the Forecast Period, the interest rate for the loan may
be annually adjusted by the Administrator upward to a rate not greater
than 5 percent, or downward to a rate
not less than the rate determined in
the feasibility study on which the loan
was based, based on the borrower’s
ability to pay debt service and maintain a minimum TIER of 1.0. Downward
and upward adjustments will be rounded down to the nearest one-half or
whole percent. To make this adjustment, projections set forth in the loan

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Rural Utilities Service, USDA

§ 1735.43

feasibility study will be revised annually by RUS (beginning within four
months after the end of the Forecast
Period) to reflect updated revenue and
expense factors based on the borrower’s
current operating condition. Any such
adjustment will be effective on July 1
of the year in which the adjustment
was determined. If the Administrator
determines that the borrower is capable of meeting the minimum TIER requirements of § 1735.22(f) at a loan interest rate of 5 percent on a loan made
as described in this section, then the
loan interest rate shall be fixed, for the
remainder of the loan repayment period, at the standard interest rate of 5
percent.
[62 FR 46870, Sept. 5, 1997]

§§ 1735.34–1735.39

[Reserved]

Subpart D—Terms of Loans
SOURCE: 54 FR 13351, Apr. 3, 1989, unless
otherwise noted. Redesignated at 55 FR 39395,
Sept. 27, 1990.

§ 1735.40 General.
Terms and conditions of loans are set
forth in a mortgage, note, and loan
contract. Provisions of the mortgage
and loan contract are implemented by
provisions in RUS Bulletins and Regulations. Forms of the mortgage, note,
and loan contract can be obtained from
RUS.
§ 1735.41 Notes.
Loans are represented by one or more
notes. Interest accrues only on funds
advanced. There are no loan commitment fees or charges. See RUS Bulletin
320–12 for additional information. This
CFR part supersedes those portions of
RUS Bulletin 320–12 ‘‘Loan Payments
and Statements’’ with which it is in
conflict.
§ 1735.42

[Reserved]

§ 1735.43 Payments on loans.
(a) Except as described in this paragraph (a), RUS loans approved after October 6, 1997 must be repaid with interest within a period that, rounded to the
nearest whole year, equals the expected
composite economic life of the facilities to be financed, as calculated by

RUS; expected composite economic life
means the depreciated life plus three
years. The expected composite economic life shall be based on the depreciation rates for the facilities financed
by the loan. In states where the borrower must obtain state regulatory
commission approval of depreciation
rates, the depreciation rates used shall
be the rates currently approved by the
state commission or rates for which
the borrower has received state commission approval. In cases where a
state regulatory commission does not
approve depreciation rates, the expected composite economic life shall be
based on the most recent median depreciation rates published by RUS for all
borrowers (see 7 CFR 1737.70). Borrowers may request a repayment period
that is longer or shorter than the expected composite economic life of the
facilities financed. If the Administrator determines that a repayment period based on the expected composite
economic life of the facilities financed
is likely to cause the borrower to experience hardship, the Administrator
may agree to approve a period longer
than requested. A shorter period may
be approved as long as the Administrator determines that the loan remains feasible.
(b) Borrowers with RTB loans approved after October 6, 1997 with a maturity that exceeds the expected composite economic life of the facilities to
be financed by the loan by a period of
more than three years, release of funds
included in the loan shall be conditioned upon the borrower establishing
and maintaining, pursuant to a plan
approved by RUS, a funded reserve in
such an amount that the balance of the
reserve plus the value of the facilities
less depreciation shall at all times be
at least equal to the remaining principal payments on the loan. Funding of
the reserve must begin within one year
of approval of release of funds and
must continue regularly over the expected composite economic life of the
facilities financed.
(c) Borrowers that have demonstrated to the satisfaction of the Administrator an inability to maintain
the funded reserve or net plant to secured debt ratio requirements, if any,
contained in their mortgage, may elect

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§ 1735.44

7 CFR Ch. XVII (1–1–03 Edition)

to replace notes with an original maturity that exceeded the composite economic life of the facilities financed
with notes bearing a shorter maturity
approximating the expected composite
economic life of the facilities financed,
if this will result in a shorter maturity
for the loan. The principal balance of
the notes (hereinafter in this section
called the ‘‘refunding notes’’) issued to
refund and substitute for the original
notes would be the unpaid principal
balance of the original notes. The refunding notes would mature at a date
no later than the remaining economic
life of the facilities financed by the
loan, plus three years, as determined
by the original feasibility study prepared in connection with the loan. Interest on the original note must continue to be paid through the closing
date. All other payment terms, including the rate of interest on the refunding notes, would remain unchanged.
Disposition of funds in the funded reserve will be determined by RUS at the
closing date. RUS will notify the borrower in writing of the amendment of
loan payment requirements and the
terms and conditions thereof.
(d) A borrower qualifying under paragraph (c) of this section shall not be required to pay a prepayment premium
on such portion of the payments under
its new notes as exceeds the payments
required under the notes being replaced.
(e) To apply for refunding notes, borrowers must send to the Area Office
the following:
(1) A certified copy of a board resolution requesting an amendment of loan
payment requirements and that certain
notes be replaced;
(2) If applicable, evidence of approval
by the regulatory body with jurisdiction over the telecommunications service provided by the borrower to issue
refunding notes; and
(3) Such other documents as may be
required by the RUS.
(f) Principal and interest will be repaid in accordance with the terms of
the notes. Generally, interest is payable each month as it accrues. Principal payments on each note generally
are scheduled to begin 2 years after the
date of the note. After this deferral period, interest and principal payments

on all funds advanced during this 2year period are scheduled in equal
monthly installments. Principal payments on funds advanced 2 years or
more after the date of the note will
begin with the first billing after the advance. The interest and principal payments on each of these advances will be
scheduled in equal monthly installments. This CFR part supersedes those
portions of RUS Bulletin 320–12, ‘‘Loan
Payments and Statements’’ with which
it is in conflict.
[56 FR 26598, June 10, 1991, as amended at 62
FR 46871, Sept. 5, 1997]

§ 1735.44 Prepayment premiums.
The loan documents normally provide that RUS insured loans may be repaid in full at any time without prepayment premiums. Depending upon
the lender, there may be prepayment
premiums on loans guaranteed by RUS.
See 7 CFR part 1610 for prepayment
premiums on RTB loans. See RUS Bulletin 320–12 for additional information.
This CFR part supersedes those portions of RUS Bulletin 320–12, ‘‘Loan
Payments and Statements’’, with
which it is in conflict.
§ 1735.45 Extension of payments.
RUS may extend the time of payment of principal or interest on a loan.
Under section 12 of the Rural Electrification Act, as amended, this extension may be up to 5 years after such
payment is due. Under section 236 of
the Disaster Relief Act of 1970 (Pub. L.
91–606) payment may be deferred by the
Secretary of Agriculture as long as
necessary in disaster situations so long
as the final maturity date is not later
than 40 years after the date of the loan.
See RUS Bulletin 320–2 for additional
information.
§ 1735.46 Loan security documents.
(a) Loans are to be repaid according
to their terms. RUS generally obtains
a first lien on all assets of the borrower. This lien shall be in the form of
a mortgage by the borrower to the
Government or a deed of trust made by
and between the borrower and a trustee, satisfactory to the Administrator,
together with such security agreements, financing statements, or other
security documents as RUS may deem

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§ 1735.50

necessary in a particular case. Where a
borrower is unable by reason of pre-existing encumbrances, or otherwise, to
furnish a first mortgage lien on its entire system the Administrator may, if
he determines such security to be reasonably adequate and the form and nature thereof otherwise appropriate, accept other forms of security. See RUS
Bulletins 320–4, 320–22, 321–2, 322–2, 323–
1, and 326–1 for details. See 7 CFR part
1744, subpart B for information on lien
accommodations and subordinations.
(b) Loan security documents of borrowers with loans approved after October 6, 1997 will provide limits on allowable cash distributions in any calendar
year as follows:
(1) No more than 25 percent of the
prior calendar year’s net earnings or
margins if the borrower’s net worth is
at least 1 percent of its total assets
after the distribution is made;
(2) No more than 50 percent of the
prior calendar year’s net earnings or
margins if the borrower’s net worth is
at least 20 percent of its total assets
after the distribution is made;
(3) No more than 75 percent of the
prior calendar year’s net earnings or
margins if the borrower’s net worth is
at least 30 percent of its total assets
after the distribution is made; or
(4) No limit on distributions if the
borrower’s net worth is at least 40 percent of its total assets after the distribution is made.
(c) Borrowers that have not received
a loan after October 6, 1997 may request
the Administrator to apply these requirements to them. Borrowers may request in writing that RUS substitute
the new requirements described in
paragraphs (b)(1) through (b)(4) of this
section. Upon request by the borrower,
the provisions of the borrower’s loan
documents restricting cash distributions or investments shall not be enforced to the extent that such provisions are inconsistent with this section.
(d) Rural development investments
meeting the criteria set forth in 7 CFR
part 1744, subpart D, will not be counted against a borrower’s allowable cash
distributions in any calendar year (7
U.S.C. 926).
(e) References to a borrower’s mortgage in this section include deeds of

trust and any other loan document applying the same requirements to a borrower.
(f) This section does not limit the
rights of any parties to the mortgage
other than RUS or RTB.
[54 FR 13351, Apr. 3, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990, as amended at 59 FR
29537, June 8, 1994; 62 FR 46871, Sept. 5, 1997]

§ 1735.47

Rescissions of loans.

(a) Rescission of a loan may be requested by a borrower at any time. To
rescind a loan, the borrower must demonstrate to RUS that:
(1) The purposes of the loan being rescinded have been completed;
(2) Sufficient funds are available
from sources other than RUS, RTB or
FFB to complete the purposes of the
loan being rescinded; or
(3) The purposes of the loan are no
longer required to extend or improve
telephone service in rural areas.
(b) Borrowers submitting loan applications containing purposes previously
covered by a loan that has been rescinded shall include in the application
an explanation, satisfactory to RUS, of
the change of conditions since the rescission that re-establishes the need for
those purposes.
(c) RUS shall not initiate the rescission of a loan unless all of the purposes
for which telephone loans have been
made to the borrower under the Act
have been accomplished with funds provided under the Act.
[56 FR 26598, June 10, 1991]

§§ 1735.48–1735.49

[Reserved]

Subpart E—Basic Requirements
For Loan Approval
SOURCE: 54 FR 13351, Apr. 3, 1989, unless
otherwise noted. Redesignated at 55 FR 39395,
Sept. 27, 1990.

§ 1735.50

Administrative findings.

The RE Act requires that the Administrator make certain findings to approve a telephone loan or loan guarantee. The borrower shall provide the
evidence determined by the Administrator to be necessary to make these

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§ 1735.51

7 CFR Ch. XVII (1–1–03 Edition)

findings. Details on the information required to support these findings are included in 7 CFR part 1737.
§ 1735.51 Required findings.
(a) Feasibility of and security for the
Loan. The borrower shall provide RUS
with satisfactory evidence to enable
the Administrator to determine that
the security for the loan is reasonably
adequate and the loan will be repaid on
time. This finding is based on the following factors:
(1) Self-liquidation of the loan within
the loan amortization period; this requires that there be sufficient revenues
from the borrower’s system, in excess
of operating expenditures (including
maintenance and replacement), to
repay the loan with interest.
(2) Reasonable assurance of achieving
the telephone market projections upon
which the loan is based.
(3) Economic feasibility (based on
projected revenues, expenses, net income, maximum debt service, and rate
of return on investment) for the proposed system using local service rate
schedules appropriate for the area
served.
(4) Impact of the proposed loan and
construction on the ratio of the borrower’s secured debt to assets.
(5) Projected growth in the borrower’s equity.
(6) Satisfactory experience and reputation of the system’s principal owners and manager.
(7) A first lien on the borrower’s total
system or other adequate security.
(8) Fair market value of the borrower’s assets as represented in its financial reports to RUS.
(9) Appropriate financial and managerial controls included in the loan
documents.
(10) Other factors determined to be
relevant by RUS.
(b) Area coverage. The borrower shall
provide RUS with satisfactory evidence
to enable the Administrator to determine that adequate telephone service
will be made available to the widest
practical number of rural users during
the life of the loan.
(c) Nonduplication or certificate requirement. The borrower shall provide
RUS with satisfactory evidence to enable the Administrator to determine

that no duplication of service shall result from a particular loan for those
borrowers not required by the state
regulatory commission to have a certificate of convenience and necessity
(or its equivalent). For borrowers required to have a certificate of convenience and necessity, all portions of the
existing and proposed system must be
covered by the certificate.
[54 FR 13351, Apr. 3, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990, as amended at 56 FR
26598, June 10, 1991]

§ 1735.52 Findings required for particular loan purposes.
(a) Refinancing. For loans that include funds to refinance outstanding
indebtedness of the borrower, the borrower shall provide RUS with satisfactory evidence to enable the Administrator to determine that the inclusion
in the loan of such funds shall be necessary and incidental to furnishing or
improving telephone service in rural
areas. See 7 CFR 1735.21.
(b) Facilities for nonrural areas. Whenever a borrower proposes to use loan
funds for the improvement, expansion,
construction, or acquisition of telephone facilities within or for nonrural
areas, the borrower shall provide RUS
with satisfactory evidence to enable
the Administrator to determine that
such funds shall be necessary and incidental to furnishing or improving telephone service in rural areas.
§§ 1735.53–1735.59

[Reserved]

Subpart F—Mortgage Controls on
Acquisitions and Mergers
SOURCE: 54 FR 14626, Apr. 12, 1989, unless
otherwise noted. Redesignated at 55 FR 39395,
Sept. 27, 1990.

§ 1735.60

Specific provisions.

(a) The standard form of RUS mortgage contains certain provisions concerning mergers and acquisitions:
(1) Article II, section 4(a) requires the
borrower to obtain the written approval of the majority noteholders before taking any action to reorganize, or
to consolidate with or merge into any
other corporation.

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Rural Utilities Service, USDA

§ 1735.70

(2) Article II, section 4(b), if made applicable, provides certain exceptions to
the requirements of section 4(a).
(b) Similar provisions are contained
in other forms of documents executed
by borrowers that have not entered
into the standard form of mortgage.
(c) Mortgages and loan contracts
may contain other provisions concerning mergers and acquisitions.
[54 FR 14626, Apr. 12, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990, as amended at 62 FR
46871, Sept. 5, 1997]

§ 1735.61 Approval criteria.
(a) If a borrower is required by the
terms of its mortgage or loan contract
to obtain RUS approval of a merger or
acquisition, the borrower shall request
RUS approval and shall provide RUS
with such data as RUS may request.
(b) If loan funds are requested, the
borrower shall comply with subpart G
of this part. If no additional loan funds
are involved, the borrower shall comply with subpart H of this part.
(c) In considering whether to approve
the request, RUS will take into account, among other matters:
(1) Whether the operation, management, and the economic and loan-repayment feasibility characteristics of
the proposed system are satisfactory;
(2) Whether the merger or acquisition
may result in any relinquishment, impairment, or waiver of a right or power
of the Government;
(3) Whether the proposed merger or
acquisition is in the best interests of
the Government as note holder; and
(4) Whether the proposed purchase
price and terms of an acquisition are
reasonable, regardless of the source of
funds used to pay for the purchase.
RUS will consider the purchase price
unreasonable if, in RUS’s opinion, it
will endanger financial feasibility.
§ 1735.62 Approval of acquisitions and
mergers.
(a) If a proposal is unsatisfactory to
RUS, then RUS shall inform the borrower in writing of those features it
considers objectionable and, as appropriate, recommend corrective action.
(b) If a proposal is satisfactory to
RUS, then RUS shall inform the borrower in writing of its approval and
any conditions of such approval.

Among the conditions of approval are
the following:
(1) RUS shall require a compensating
benefit in return for any relinquishment, impairment, or waiver of its
rights or powers.
(2) If the survivor is an affiliate of
another company, RUS shall require
any investments in, advances to, accounts receivable from, and accounts
payable to the affiliated company contrary to mortgage provisions shall be
eliminated in a manner satisfactory to
the Administrator.
(3) RUS requires that the borrower
agree not to extend credit to, perform
services for, or receive services from
any affiliated company unless specifically authorized in writing by the Administrator or pursuant to contracts
satisfactory in form and substance to
the Administrator.
(4) RUS may require the borrower to
execute additional mortgages, loan
agreements, and associated documentation.
§§ 1735.63–1735.69

[Reserved]

Subpart G—Acquisitions Involving
Loan Funds
SOURCE: 54 FR 14626, Apr. 12, 1989, unless
otherwise noted. Redesignated at 55 FR 39395,
Sept. 27, 1990.

§ 1735.70

Use of loan funds.

(a) See 7 CFR part 1735 and 1737 for
RUS’s general loan policies and requirements.
(b) RUS will finance an acquisition
by a borrower only when the acquisition is necessary and incidental to furnishing or improving rural telephone
service and the service area is eligible
for RUS assistance.
(c) RUS does not make loans for the
sole purpose of merging or consolidating telephone organizations. After a
merger or consolidation, RUS will consider making loans to the telephone
system to finance the improvement or
extension of telephone service in rural
areas.
(d) Generally, RUS will not make a
loan for the acquisition of an existing
borrower unless, in addition to all
other requirements, such acquisition

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§ 1735.71

7 CFR Ch. XVII (1–1–03 Edition)

will improve the likelihood of repayment of an outstanding RUS loan and
all outstanding balances of the previous RUS loans are paid in full.
(e) In determining the amount it will
lend for each acquisition, RUS shall
place a valuation on all telephone facilities that are to be acquired with
loan funds. RUS may consider fair market value, the original cost less depreciation of the facilities, income generating potential, any improvement in
the financial strength of the borrower
as a result of the acquisition, and any
other factors deemed relevant by RUS
to determine the reasonableness of the
acquisition price and the amount of
loan funds RUS will provide for an acquisition. RUS shall not consider the
acquisition price reasonable or approve
a loan if, in the Administrator’s opinion, the acquisition price will endanger
financial feasibility. If the acquisition
price exceeds the amount RUS will
lend, the borrower provides the remainder.
(f) When a borrower intends to request RUS loan funds for an acquisition, it shall present a proposal in writing to the Area Office as soon as possible. The borrower must either obtain
RUS approval prior to making any
binding commitments with the seller
or make the commitments subject to
RUS’s approval. Failure to comply
with these requirements will disqualify
the borrower from obtaining an RUS
loan for the acquisition unless the Administrator determines there were extenuating circumstances.
§ 1735.71 Nonrural areas.
Loan funds may be approved for the
acquisition and improvement of facilities to serve nonrural subscribers only
if the principal purpose of the loan is
to furnish and improve rural service
and only if the use of loan funds to
serve nonrural subscribers is necessary
and incidental to the principal purpose
of the loan. For example, when the acquisition of an existing system located
in and serving a nonrural area is necessary to serve as the nucleus of an expanded system to furnish area coverage
service in rural areas, the loan may include funds to finance the acquisition.
Approval for the use of loan funds in
these circumstances shall be made only

on a case by case basis by the Administrator.
§ 1735.72 Acquisition agreements.
When borrowers are seeking RUS financing, acquisition agreements between the borrower and the seller must
be in form and substance satisfactory
to RUS and shall be expressly conditioned on approval of the agreement by
RUS and on obtaining an RUS loan.
Normally, the acquisition agreement
will not be approved by RUS until the
loan has been approved.
§ 1735.73 Loan design.
When loan funds are requested for an
acquisition, details of the proposed acquisition shall be included in the Loan
Design. See 7 CFR part 1737.
§ 1735.74 Submission of data.
(a) RUS will not approve any acquisition, other than of toll facilities (see
subpart J of this part), financed in
whole or in part with loan funds until
the borrower submits the following
data to the GFR:
(1) For any nonborrowers involved,
their most recent balance sheets, operating statements, detail of plant accounts, reports to the state commission, and audits, if available.
(2) Completed RUS Form 507, ‘‘Report
on Telephone Acquisition,’’ which provides system data, including the type
of purchase and purchase price, a system description, and data by exchange.
See § 1735.3 for information on obtaining copies of this form.
(3) A map (such as a road map) showing county lines, the boundaries of the
proposed acquisition and the borrower’s existing service territory, and
the names of other telephone companies serving adjoining areas.
(4) A brief statement of the plans for
incorporating the acquired facilities
into the borrower’s existing system.
(5) The number of subscribers currently receiving service in the area to
be acquired and the number of new subscribers that will be served over the
next 5 years as a result of the acquisition.
(6) The proposed purchase price.
(7) Two copies of any options, bills of
sale, or deeds, and four copies of any
acquisition agreements. All of these

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§ 1735.75

documents are subject to RUS approval. If the acquisition agreement is
approved by RUS, two copies of it shall
be returned to the borrower.
(8) An appraisal by the borrower’s
consulting engineer or other qualified
person of the physical plant to be acquired. The appraisal shall include the
following:
(i) Inspection of each central office,
noting the age and condition of the
switch and associated equipment, and
the extent and quality of maintenance
of the equipment and premises.
(ii) Inspection of the outside plant,
noting the general age and condition of
cable and wire, poles and related hardware, pedestals, and subscriber drops.
Any joint use or ownership shall be explained.
(iii) Inspection of miscellaneous
items such as commercial office facilities, vehicles, furniture, tools and work
equipment, and materials and supplies
in stock, noting age and condition.
(iv) Inspection of all buildings and
other structures (such as radio towers),
noting age and condition.
(v) Detailed description of all real estate including the present market
value that local real estate dealers,
bankers, insurance agents, etc., place
on the property.
(vi) Any widely accepted method, approved by RUS, may be used to estimate the condition of the facilities in
paragraphs (a)(8)(i) through (a)(8)(iv) of
this section. The ‘‘percent condition’’
method is recommended, but is not required.
(9) Copies of deeds to real estate to be
acquired, with an explanation of the
proposed use of the land.
(10) Copies of leases to be acquired.
(11) Copies of any existing mortgages
with parties other than RUS, indentures, deeds of trust, or other security
documents or financing agreements relating to the property to be acquired
and any contracts or other rights or
obligations to be assumed as part of
the acquisition.
(12) A list of all counties in which the
proposed system will have facilities.
(13) If the borrower is a cooperativetype organization, a description of its
plans for taking subscribers in as members, membership fees, equity payments required because of the acquisi-

tion, and extent of membership support.
(14) A certification, signed by the
president of the borrower, that the borrower is participating in the State’s
telecommunications
modernization
plan (for information concerning the
plan, see 7 CFR part 1751, subpart B).
This certification is not required if the
borrower is seeking a guaranteed loan.
(15) Any other data deemed necessary
by the Administrator for an evaluation
of the acquisition.
(b) For stock acquisitions, the borrower shall submit the following in addition to the items listed in (a) of this
section:
(1) A list of all stockholders of the
company to be acquired and the number of shares each owns.
(2) Guarantees and indemnifications
to be obtained from the sellers of the
stock.
(Approved by the Office of Management and
Budget under control number 0572–0084)
[54 FR 14626, Apr. 12, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990; 58 FR 66256, Dec. 20,
1993]

§ 1735.75

Interim financing.

(a) A borrower may submit a written
request for RUS approval of interim financing if it is necessary to close an
acquisition before the loan to finance
the acquisition is approved. Loan funds
shall not be used to reimburse acquisition costs unless RUS has granted approval of interim financing prior to the
closing of the acquisition.
(b) RUS will approve interim financing of acquisitions only in cases where
loan funds cannot be made available in
time for the closing.
(c) RUS will not approve interim financing unless the following information is acceptable:
(1) A written request for approval of
interim financing, including a brief description of the acquisition, an explanation of the urgency of proceeding
with the acquisition, and the source of
funds to be used.
(2) A completed RUS Form 490, ‘‘Application for Telephone Loan or Loan
Guarantee.’’ See 7 CFR part 1737.
(3) The portions of the Loan Design
that cover the proposed acquisition, including cost estimates and information

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§ 1735.76

7 CFR Ch. XVII (1–1–03 Edition)

on any investments in nonrural areas.
See 7 CFR 1737.
(4) The information required in
§ 1735.74 (a)(1) through (a)(8), (a)(14) and
(b)(1).
(5) Any other data deemed necessary
by the Administrator to approve the
interim financing of the acquisition.
(d) Furthermore, RUS will not approve interim financing if, in RUS’s
judgment, the proposed acquisition
will not qualify for RUS financing or
the proposed interim financing presents unacceptable loan security risks
to RUS.
(e) Because RUS approval of interim
financing is not a commitment to
make a loan, RUS will not approve interim financing unless the borrower is
prepared to assume responsibility for
financing all obligations incurred.
(f) If the borrower plans to proceed
with the closing after receiving RUS
approval of interim financing, it must
first receive preliminary approval from
RUS. See § 1735.90
(g) See 7 CFR part 1737 for regulations on interim financing for construction.
(h) See 7 CFR part 1744, subpart B for
conditions under which RUS will provide shared first lien and/or a lien accommodation for non-RUS lenders.
§ 1735.76 Acquisition of affiliates.
A borrower shall not use RUS loan
funds to acquire any stock or any telephone plant of an affiliate.
[54 FR 14626, Apr. 12, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990, as amended at 62 FR
46871, Sept. 5, 1997]

§ 1735.77 Release of loan funds, requisitions, advances.
(a) RUS will not approve the advance
of loan funds until the borrower has
fulfilled all loan contract provisions to
the extent deemed necessary by RUS.
(b) The first advance of loan funds
pursuant to the loan contract normally
shall provide funds needed for the acquisition. Unless the borrower has received approval of interim financing, it
must submit the requisition in time for
the advance to be made by the closing
date.
(c) After the borrower has closed the
acquisition, it shall furnish RUS all
documents necessary to demonstrate

to RUS’s satisfaction that the transaction has been closed.
(d) Advances for improvements or expansion of the acquired facilities will
not be approved until RUS has determined that the transaction has been
closed and the borrower has obtained
satisfactory title to the acquired facilities.
(e) See 7 CFR part 1737 (or RUS Bulletin 320–4) for additional requirements
for releases of loan funds and 7 CFR
part 1744, subpart C for additional requirements for requisitions and advances.
§§ 1735.78–1735.79

[Reserved]

Subpart H—Acquisitions or Mergers Not Involving Additional
Loan Funds
§ 1735.80 Submission of data.
When a borrower is not requesting
loan funds for an acquisition or merger, the borrower shall first notify RUS
and submit for review by RUS the documents and information listed in (a)
through (l) of this section required by
RUS.
(a) For any nonborrowers involved,
their most recent balance sheets, operating statements, detail of plant accounts, reports to the state commission, and audits, if available.
(b) Completed RUS Form 507, ‘‘Report on Telephone Acquisition.’’
(c) A map (such as a road map) showing county lines, the boundaries of the
proposed acquisition and the borrower’s existing service territory, and
the names of other telephone companies serving adjoining areas.
(d) A brief statement of the plans for
incorporating the acquired facilities
into the borrower’s existing system.
(e) The number of subscribers currently receiving service in the areas involved in the acquisition or merger and
the number of new subscribers that
will be served over the next 5 years as
a result of the acquisition or merger.
(f) Copies of deeds of real estate to be
acquired, with an explanation of the
proposed use of the land.
(g) Copies of security documents of
any other lenders involved and any
contracts or other rights of obligations
to be assumed by the survivor.

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Rural Utilities Service, USDA

§ 1735.92

(h) A list of all counties in which the
proposed system will have facilities.
(i) If Article II, section 4(b) of the
standard mortgage has not been made
applicable, plans for operating the unified system.
(j) In the case of a merger, the proposed articles of merger that are to be
used.
(k) In the case of an acquisition, the
proposed purchase price, plus two copies of any options, bills of sale, or
deeds, and two copies of any acquisition agreements. All of these documents are subject to RUS approval. If
the acquisition agreement is approved
by RUS, two copies of it shall be returned to the borrower.
(l) Any other data deemed necessary
by the Administrator for an evaluation
of the acquisition or merger.
(Approved by the Office of Management and
Budget under control number 0572–0084)
[54 FR 14626, Apr. 12, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990]

§§ 1735.81–1735.89

[Reserved]

Subpart I—Requirements for All
Acquisitions and Mergers

(Approved by the Office of Management and
Budget under control number 0572–0084)

§ 1735.91

Preliminary approvals.

(a) In cases where the borrower’s
schedule for completion of the proposed action leaves insufficient time
for RUS to prepare and process the required documentation, including new
mortgages and replacement notes, the
borrower may request RUS to give preliminary approval to the acquisition or
merger. However, the borrower may
not obtain additional loan funds until
the documentation is completed to
RUS’s satisfaction.
(b) Consideration of preliminary approvals generally will not be practicable in cases in which compensating
benefits are required.
(c) RUS will not give preliminary approval when the lien of the mortgage
on after-acquired property may be affected.

Location of facilities.

Telephone facilities to be acquired
must be located so that they can be efficiently operated by the borrower and
provide adequate security for the RUS
loan.
§ 1735.92

SOURCE: 54 FR 14626, Apr. 12, 1989, unless
otherwise noted. Redesignated at 55 FR 39395,
Sept. 27, 1990.

§ 1735.90

(d) Before RUS will grant preliminary approval, the borrower shall submit:
(1) Merger or acquisition documents
required by state law;
(2) Acquisition agreements covering
the transaction;
(3) Any required franchises, licenses,
and permits;
(4) All required regulatory body approvals;
(5) All required corporate actions;
(6) Leases, contracts, and evidence of
titles to be assigned to the purchaser;
and
(7) The latest audited financial statements for any nonborrowers involved.
(e) If the information in (d) of this
section is acceptable to RUS, the borrower may proceed with the closing.

Accounting considerations.

(a) Proper accounting shall be applied to all acquisitions and mergers,
as required by the regulatory commission having jurisdiction, or in the absence of such a commission, as required
by RUS based on Generally Accepted
Accounting Principles or other accounting conventions as deemed necessary by RUS.
(b) If RUS determines that the plant
accounts are not properly depreciated,
the borrower should adjust its depreciation rates. Depending upon the characteristics of the case, commission jurisdiction and requirements, and similar factors, one of the following actions
shall be taken:
(1) In states where commission approval of depreciation rates is required,
a covenant shall be included in the
loan contract that requires the borrower to:
(i) Have the consulting engineer
make an original cost less depreciation
inventory and appraisal of retained
plant as part of the final inventory,
and

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§ 1735.93

7 CFR Ch. XVII (1–1–03 Edition)

(ii) Request commission approval of
adjustments to its records on the basis
of this inventory.
(2) In states where commission approval is not required, informal discussions between RUS and the borrower
may be undertaken to reach satisfactory voluntary adjustments. If this
does not resolve the situation to RUS’s
satisfaction, a covenant similar to that
in paragraph (b)(1)(i) of this section
shall be included in the loan contract
and the borrower shall agree to submit
evidence satisfactory to the Administrator that it has adjusted its records
on the basis of the inventory.
§ 1735.93 Notes.
Substitute notes may be required in
the case of an acquisition or merger,
regardless of the source of funds.
§ 1735.94 Final approval and closing
procedure.
(a) Legal documents relating to the
acquisition or merger, including copies
of required franchises, commission orders, permits, licenses, leases, title evidence, corporate proceedings, and contracts to be assigned to the purchaser
shall be forwarded to the Area Office
prior to closing.
(b) The Administrator will not give
final approval to any acquisition or
merger until all RUS requirements relating to the transactions are satisfied.
(c) Following the Administrator’s
final approval of the proposal, the Area
Office shall inform the borrower in
writing of the necessary legal and
other actions required for the advance
of loan funds to finance the acquisition, including the submission, in form
and substance satisfactory to the Administrator, of (1) all information and
documents necessary to demonstrate
that the transaction has been completed, and (2) all loan contracts, notes,
mortgages, and related documents and
materials required by RUS.
(d) Deeds reflecting the change in
ownership, executed bills of sale, and
opinions of counsel shall be forwarded
to the Area Office following closing.
(e) RUS will not advance loan funds
to furnish or improve service in the acquired or merged areas until the Administrator has given final approval
and the transaction has been closed.

RUS may, however, advance funds if it
determines that loan security will not
be jeopardized.
(f) At the discretion of RUS, a GFR
may be present at the closing to assist
the borrower and protect the interests
of RUS. Under certain circumstances
the closing may take place prior to
RUS granting final approval for the
transaction and the execution of
amended loan security documents.
§ 1735.95

Unadvanced loan funds.

(a) The unadvanced loan funds of a
borrower that will not be a survivor of
an acquisition or merger shall be advanced only to the survivor and only
under the following circumstances.
(1) If the funds are to be used for purposes approved in prior loans, the funds
shall be advanced after the effective
date of the proposed action only when
all loan contract prerequisites have
been met and documents have been
submitted in form and substance satisfactory to the Administrator.
(2) If the funds are to be used for new
purposes, then in addition to the requirements in (a)(1) of this section,
RUS must also approve the change in
purpose.
(b) No loan or other money in the
construction fund shall be used to finance facilities outside areas to be
served by projects approved by RUS.
§§1735.96–1735.99

[Reserved]

Subpart J—Toll Line Acquisitions
§ 1735.100

Use of loan funds.

An acquisition of toll line facilities
financed with loan funds must be necessary and incidental, as determined by
the Administrator, to furnishing or improving telephone service in rural
areas. The borrower shall submit to
RUS the acquisition agreement, the
original cost less depreciation of the
facilities, any concurrences with the
connecting companies involved, and a
detailed inventory of the facilities to
be purchased. The borrower must submit to RUS evidence, satisfactory to
the Administrator, of the borrower’s

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Rural Utilities Service, USDA

§ 1737.1

ownership of the toll line facilities before loan funds for improvement of
those facilities will be advanced.
[54 FR 14626, Apr. 12, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990]

§ 1735.101

Subpart F—Review of Application
Procedures
1737.50 Review of completed loan application.
1737.51 Approval of loan design.
1737.52–1737.59 [Reserved]

With nonloan funds.

When an acquisition is limited to toll
line facilities and loan funds are not involved, RUS approval of the acquisition is not required. The borrower,
however, shall submit to RUS for its
approval all concurrences with the connecting companies involved and any
other proof of ownership of the toll facilities required by RUS.
[54 FR 14626, Apr. 12, 1989. Redesignated at 55
FR 39395, Sept. 27, 1990]

PART 1737—PRE-LOAN POLICIES
AND PROCEDURES COMMON TO
INSURED
AND
GUARANTEED
TELECOMMUNICATIONS LOANS

Subpart G—Project Cost Estimation
Procedures
1737.60 Telephone loan budget.
1737.61 Cost allocation for
nonrural areas.
1737.62–1737.69 [Reserved]

rural

and

Subpart H—Feasibility Determination
Procedures
1737.70 Description of feasibility study.
1737.71 Interest rate to be considered for the
purpose of assessing feasibility for loans.
1737.72–1737.79 [Reserved]

Subpart I—Characteristics Letter
1737.80 Description of characteristics letter.
1737.81–1737.89 [Reserved]

Subpart J—Final Loan Approval
Procedures

Subpart A—General
Sec.
1737.1 General statement.
1737.2 Definitions.
1737.3 Availability of RUS forms.
1737.4–1737.9 [Reserved]

1737.90 Loan approval requirements.
1737.91 Approval.
1737.92 Loan documents.
1737.93–1737.99 [Reserved]

Subpart K—Release of Funds Procedure
Subpart B—Preapplication Stage

1737.100 Prerequisites to the release and advance of funds.
1737.101 Amounts spent for preloan activities.
1737.102–1737.109 [Reserved]

1737.10 Initial contact.
1737.11 Preapplication determinations.
1737.12–1737.19 [Reserved]

Subpart C—The Loan Application

AUTHORITY: 7 U.S.C. 901 et seq., 1921 et seq.;
Pub. L. 103–354, 108 Stat. 3178 (7 U.S.C. 6941 et.
seq.).

1737.20 [Reserved]
1737.21 The completed loan application.
1737.22 Supplementary information.
1737.23–1737.29 [Reserved]

SOURCE: 54 FR 13356, Apr. 3, 1989, unless
otherwise noted. Redesignated at 55 FR 39396,
Sept. 27, 1990.

Subpart D—Preloan Studies—Area
Coverage Survey and Loan Design

Subpart A—General
§ 1737.1 General statement.
(a) This part prescribes policies, procedures and responsibilities relating to
applications for RUS loans to finance
the improvement and extension of telephone service in rural areas. Requirements for both initial and subsequent
loans are discussed, with differences
pointed out.
(b) This part sets forth the policies,
procedures, and requirements of RUS

1737.30 General.
1737.31 Area Coverage Survey (ACS).
1737.32 Loan Design (LD).
1737.33–1737.39 [Reserved]

Subpart E—Interim Financing of
Construction of Telephone Facilities
1737.40 General.
1737.41 Procedure for obtaining approval.
1737.42 Procedure for construction.
1737.43–1737.49 [Reserved]

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