Title 7:
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PART 1744�POST-LOAN POLICIES AND PROCEDURES COMMON TO GUARANTEED AND
INSURED TELEPHONE LOANS
Section Contents
Subpart
A [Reserved]
Subpart
B�Lien Accommodations and Subordination
Policy
� 1744.20 General.
� 1744.21 Definitions.
�� 1744.22-1744.29 [Reserved]
� 1744.30 Automatic
lien accommodations.
� 1744.40 Act
purposes.
�� 1744.41-1744.49 [Reserved]
� 1744.50 Non-Act
purposes.
�� 1744.51-1744.54 [Reserved]
� 1744.55 Application
procedures.
�� 1744.56-1744.59 [Reserved]
Appendix
A to Subpart B of Part 1744�Statement, Certification, and Agreement of
Borrower's President of Board of Directors Regarding Refinancing and
Refunding Notes Pursuant to 7 CFR 1744.30(c)
Appendix
B to Subpart B of Part 1744�Certification of Independent Certified Public
Accountant Regarding Notes To Be Issued Pursuant to 7 CFR
1744.30(c)
Appendix
C to Subpart B of Part 1744�Statement, Certification, and Agreement of
Borrower's President of Board of Directors Regarding Notes To Be Issued
Pursuant to 7 CFR 1744.30(d)
Appendix
D to Subpart B of Part 1744�Certification of Independent Certified Public
Accountant Regarding Notes To Be Issued Pursuant to 7 CFR
1744.30
Appendix
E to Subpart B of Part 1744�Statement, Certification, and Agreement of
Borrower's President of Board of Directors Regarding Notes To Be Issued
Pursuant to 7 CFR 1744.30(e)
Appendix
F to Subpart B of Part 1744�Form of Supplemental
Mortgage
Subpart
C�Advance and Disbursement of Funds
� 1744.60 General.
� 1744.61 [Reserved]
� 1744.62 Introduction.
� 1744.63 The
telephone loan budget.
� 1744.64 Budget
adjustment.
� 1744.65 The
construction fund.
� 1744.66 The
financial requirement statement (FRS).
� 1744.67 Temporary
excess construction funds.
� 1744.68 Order
and method of advances of telephone loan funds.
� 1744.69 [Reserved]
Subpart
D [Reserved]
Subpart
E�Borrower Investments
� 1744.200 General
statement.
� 1744.201 Definitions.
� 1744.202 Borrowers
may make qualified investments without prior approval of the
Administrator.
� 1744.203 Establishing
amount of rural development investment.
� 1744.204 Rural
development investments that do not meet the ratio
requirements.
� 1744.205 Determinations
and application of limitations described in �1744.202.
� 1744.206 Effect
of subsequent failure to maintain ratios.
� 1744.207 Investment
not to jeopardize loan security.
� 1744.208 Rural
development investments before November 28, 1990.
� 1744.209 Records.
� 1744.210 Effect
of this subpart on RUS loan contract and mortgage.
Authority: 7 U.S.C. 901 et seq.,
1921 et seq., and 6941 et seq.
Subpart A [Reserved]
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Subpart B�Lien Accommodations and Subordination Policy
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Source: 51 FR 32430, Sept. 12, 1986,
unless otherwise noted. Redesignated at 55 FR 39396, Sept. 27,
1990.
� 1744.20 General.
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(a) Recent changes in the telecommunications industry, including
deregulation and technological developments, have caused Rural Utilities
Service (RUS) borrowers and other organizations providing
telecommunications services to consider undertaking projects that provide
new telecommunications services and other telecommunications services not
ordinarily financed by RUS. Although some of these services may not be
eligible for financing under the Rural Electrification Act of 1936 (RE
Act), these services may nevertheless advance RE Act objectives where the
borrower obtains financing from private lenders. The borrower's financial
strength and the assurance of repayment of outstanding Government debt may
be improved as a result of providing such telecommunications services.
(b) To facilitate the financing of new services and other services not
ordinarily financed by RUS, RUS is willing to consider accommodating the
Government's lien on telecommunications borrowers' systems or
accommodating or subordinating the Government's lien on after-acquired
property of telecommunications borrowers. To expedite this process,
requests for lien accommodations meeting the requirements of �1744.30 will
receive automatic approval from RUS.
(c) This subpart establishes RUS policy with respect to all requests
for lien accommodations and subordinations for loans from private lenders.
For borrowers that do not qualify for automatic lien accommodations in
accordance with �1744.30, RUS will consider lien accommodations for RE Act
purposes under �1744.40 and non-Act purposes under �1744.50.
[66 FR 41758, Aug. 9, 2001]
� 1744.21 Definitions.
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The following definitions apply to this subpart:
Administrator means the Administrator of RUS and includes the
Governor of the RTB.
Advance means transferring funds from RUS, RTB, or a lender
guaranteed by RUS to the borrower's construction fund.
After-acquired property means property which is to be acquired
by the borrower and which would be subject to the lien of the Government
mortgage when acquired.
Amortization expense means the sum of the balances of the
following accounts of the borrower:
| Account names |
Number |
| (1) Amortization
expense |
6560.2 |
| (2) Amortization
expense�tangible |
6563 |
| (3) Amortization
expense�intangible |
6564 |
| (4) Amortization
expense�other |
6565 |
Note: All references to account numbers are to the
Uniform System of Accounts (7 CFR part 1770, subpart B).
Asset means a future economic benefit obtained or controlled by
the borrower as a result of past transactions or events.
Automatic lien accommodation means the approval, by RUS, of a
request to share the Government's lien on a pari passu or pro-rata basis
with a private lender in accordance with the provisions of �1744.30.
Borrower means any organization that has an outstanding
telecommunications loan made or guaranteed by RUS, or that is seeking such
financing. See 7 CFR part 1735.
Construction Fund means the RUS Construction Fund Account into
which all advances of loan funds are deposited pursuant to the provisions
of the loan documents.
Debt Service Coverage (DSC) ratio means the ratio of the sum of
the borrower's net income, depreciation and amortization expense, and
interest expense, all divided by the sum of all payments of principal and
interest required to be paid by the borrower during the year on all its
debt from any source with a maturity greater than 1 year and capital lease
obligations.
Default means any event or occurrence which, unless corrected,
will, with the passage of time and the giving of proper notices, give rise
to remedies under one or more of the loan documents.
Depreciation expense means the sum of the balances of the
following accounts of the borrower:
| Account names |
Number |
| (1) Depreciation
expense |
6560.1 |
| (2) Depreciation
expense�telecommunications plant in service |
6561 |
| (3) Depreciation
expense�property held for future telecommunications use |
6562 |
Note: All references to account numbers are to the
Uniform System of Accounts (7 CFR part 1770, subpart B).
Disbursement means a transfer of money by the borrower out of
the construction fund in accordance with the provisions of the fund.
Equity percentage means the total equity or net worth of the
borrower expressed as a percentage of the borrower's total assets.
FFB means the Federal Financing Bank.
Financial Requirement Statement (FRS) means RUS Form 481
(OMB�No. 0572�0023). (This RUS Form is available from RUS, Program
Development and Regulatory Analysis, Washington, DC 20250�1522).
Government mortgage means any instrument to which the
Government, acting through the Administrator, is a party and which creates
a lien or security interest in the borrower's property in connection with
a loan made or guaranteed by RUS whether the Government is the sole
mortgagee or is a co-mortgagee with a private lender.
Hardship loan means a loan made by RUS under section 305(d)(1)
of the RE Act.
Interim construction means the purchase of equipment or the
conduct of construction under an RUS-approved plan of interim financing.
See 7 CFR part 1737.
Interest expense means the sum of the balances of the following
accounts of the borrower:
| Account names |
Number |
| (1) Interest and related
items |
7500 |
| (2) Interest on funded
debt |
7510 |
| (3) Interest
expense�capital leases |
7520 |
| (4) Amortization of debt
issuance expense |
7530 |
| (5) Less Allowance for
funds used during construction |
7340/7300.4 |
| (6) Other interest
deductions |
7540 |
Note: All references to account numbers are to the
Uniform System of Accounts (7 CFR part 1770, subpart B).
Interim financing means funding for a project which RUS has
acknowledged may be included in a loan, should said loan be approved, but
for which RUS loan funds have not yet been made available.
Lien accommodation means sharing the Government's lien on a pari
passu or pro-rata basis with a private lender.
Loan means any loan made or guaranteed by RUS.
Loan documents means the loan contract, note and mortgage
between the borrower and RUS and any associated document pertinent to a
loan.
Loan funds means the proceeds of a loan made or guaranteed by
RUS.
Material and supplies means any of the items properly recordable
in the following account of the borrower:
| Account names |
Number |
| (1) Material and
Supplies |
1220.1 |
Note: All references to account numbers are to the
Uniform System of Accounts (7 CFR part 1770, subpart B).
Net income/Net margins means the sum of the balances of the
following accounts of the borrower:
| Account names |
Number |
| (1) Local Network Services
Revenues |
5000 through 5069 |
| (2) Network Access
Services Revenues |
5080 through 5084 |
| (3) Long Distance Network
Services Revenues |
5100 through 5169 |
| (4) Miscellaneous
Revenues |
5200 through 5270 |
| (5) Nonregulated
Revenues |
5280 |
| (6) Less Uncollectible
Revenues |
5200 through 5302 |
| (7) Less Plant Specific
Operations Expense |
6110 through 6441 |
| (8) Less Plant Nonspecific
Operations Expense |
6510 through 6565 |
| (9) Less Customer
Operations Expense |
6610 through 6623 |
| (10) Less Corporate
Operations Expense |
6710 through 6790 |
| (11) Other Operating
Income and Expense |
7100 through 7160 |
| (12) Less Operating
Taxes |
7200 through 7250/7200.5 |
| (13) Nonoperating Income
and Expense |
7300 through 7370 |
| (14) Less Nonoperating
Taxes |
7400 through 7450/7400.5 |
| (15) Less Interest and
Related Items |
7500 through 7540 |
| (16) Extraordinary
Items |
7600 through 7640/7600.4 |
| (17) Jurisdictional
Differences and Nonregulated Income Items |
7910 through
7990 |
Note: All references to account numbers are to the
Uniform System of Accounts (7 CFR part 1770, subpart B).
Net plant means the sum of the balances of the following
accounts of the borrower:
| Account names |
Number |
| (1) Property, Plant and
Equipment |
2001 through 2007 |
| (2) Less Depreciation and
Amortization |
3100 through
3600 |
Note: All references to account numbers are to the
Uniform System of Accounts (7 CFR part 1770, subpart B).
Notes means evidence of indebtedness secured by or to be secured
by the Government mortgage.
Pari Passu means equably; ratably; without preference or
precedence.
Plant means any of the items properly recordable in the
following accounts of the borrower:
| Account names |
Number |
| (1) Property, Plant and
Equipment |
2001 through
2007 |
Note: All references to account numbers are to the
Uniform System of Accounts (7 CFR part 1770, subpart B).
Private lender means any lender other than the RUS or the lender
of a loan guaranteed by RUS.
Private lender notes means the notes evidencing a private
loan.
Private loan means any loan made by a private lender.
RE Act (Act) means the Rural Electrification Act of 1936 (7
U.S.C. 901 et seq. ) RTB means the Rural Telephone Bank.
RUS means the Rural Utilities Service, and includes its
predecessor, the Rural Electrification Administration. The term also
includes the RTB, unless otherwise indicated.
RUS cost-of-money loan means a loan made under section 305(d)(2)
of the RE Act.
Subordination means allowing a private lender to have a lien on
specific property which will have priority over the Government's lien on
such property.
Tangible plant means any of the items properly recordable in the
following accounts of the borrower:
| Account names |
Number |
| (1) Telecommunications
Plant in Service�General Support Assets |
2110 through 2124 |
| (2) Telecommunications
Plant in Service�Central Office Assets |
2210 through 2232 |
| (3) Telecommunications
Plant in Service�Information Origination/Termination Assets |
2310 through 2362 |
| (4) Telecommunications
Plant in Service�Cable and Wire Facilities Assets |
2410 through 2441 |
| (5) Amortizable Tangible
Assets |
2680 through 2682 |
| (6) Nonoperating Plant |
2006 |
Note: All references to account numbers are to the
Uniform System of Accounts (7 CFR part 1770, subpart B).
Telecommunication services means any service for the
transmission, emission, or reception of signals, sounds, information,
images, or intelligence of any nature by optical waveguide, wire, radio,
or other electromagnetic systems and shall include all facilities used in
providing such service as well as the development, manufacture, sale, and
distribution of such facilities.
Times interest earned ratio (TIER) means the ratio of the
borrower's net income or net margins plus interest expense, divided by
said interest expense.
Total assets means the sum of the balances of the following
accounts of the borrower:
| Account names |
Number |
| (1) Current Assets |
1100s through 1300s |
| (2) Noncurrent Assets |
1400s through 1500s |
| (3) Total
telecommunications plant |
2001 through 2007 |
| (4) Less accumulated
depreciation |
3100 through 3300s |
| (5) Less accumulated
amortization |
3400 through
3600s |
Note: All references to account numbers are to the
Uniform System of Accounts (7 CFR part 1770, subpart B).
Total equity or net worth means the excess of a borrower's total
assets over its total liabilities.
Total liabilities means the sum of the balances of the following
accounts of the borrower:
| Account names |
Number |
| (1) Current Liabilities |
4010 through 4130.2 |
| (2) Long-Term Debt |
4210 through 4270.3 |
| (3) Other Liabilities and
Deferred Credits |
4310 through
4370 |
Note: All references to account numbers are to the
Uniform System of Accounts (7 CFR part 1770, subpart B).
Total long-term debt means the sum of the balances of the
following accounts of the borrower:
| Account names |
Number |
| (1) Long-Term Debt |
4210 through
4270.3 |
Note: All references to account numbers are to the
Uniform System of Accounts (7 CFR part 1770, subpart B).
Weighted-average life of the loans or notes means the average
life of the loans or notes based on the proportion of original loan
principal paid during each year of the loans or notes. It shall be
determined by calculating the sum of all loan or note principal payments
expressed as a fraction of the original loan or note principal amount,
times the number of years and fractions of years elapsed at the time of
each payment since issuance of the loan or note. For example, given a $5
million loan, with a maturity of 5 years and equal principal payments of
$1 million due on the anniversary date of the loan, the weighted-average
life would be: (.2)(1 year) + (.2)(2 years) + (.2)(3 years) + (.2)(4
years) + (.2)(5 years) = .2 years + .4 years + .6 years + .8 years + 1.0
years = 3.0 years. If instead the loan had a balloon payment of $5 million
at the end of 5 years, the weighted-average life would be: ($5 million/$5
million)(5 years) = 5 years.
Weighted-average remaining life of the loans or notes means the
remaining average life of the loans or notes based on the proportion of
remaining loan or note principal expressed in years remaining to maturity
of the loans or notes. It shall be determined by calculating the sum of
the remaining principal payments of each loan or note expressed as a
fraction of the total remaining loan or note amounts times the number of
years and fraction of years remaining until maturity of the loan or
note.
Weighted-average remaining useful life of the assets means the
estimated original average life of the assets to be acquired with the
proceeds of the private lender notes expressed in years based on
depreciation rates less the number of years those assets have been in
service (or have been depreciated). It shall be determined by calculating
the sum of each asset's remaining value expressed as a fraction of the
total remaining value of the assets, times the estimated number of years
and fraction of years remaining until the assets are fully
depreciated.
Wholly-owned subsidiary means a corporation owned 100 percent by
the borrower.
[66 FR 41758, Aug. 9, 2001]
�� 1744.22-1744.29 [Reserved]
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� 1744.30 Automatic lien
accommodations.
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(a) Purposes and requirements for approval. Automatic lien
accommodations are available only for refinancing and refunding of notes
secured by the borrower's existing Government mortgage; financing assets,
to be owned by the borrower, to provide telecommunications services; or
financing assets, to be owned by a wholly-owned subsidiary of the
borrower, to provide telecommunications services in accordance with the
procedures set forth in this section.
(b) Private lender responsibility. The private lender is
responsible for ensuring that its notes, for which an automatic lien
accommodation has been approved as set forth in this section, are secured
under the mortgage. The private lender is responsible for ensuring that
the supplemental mortgage is a valid and binding instrument enforceable in
accordance with its terms, and recorded and filed in accordance with
applicable law. If the private lender determines that additional documents
are required or that RUS must take additional actions to secure the notes
under the mortgage, the private lender shall follow the procedures set
forth in �1744.40 or �1744.50, as appropriate.
(c) Refinancing and refunding. The Administrator will
automatically approve a borrower's execution of private lender notes and
the securing of such notes on a pari passu or pro-rata basis with all
other notes secured under the Government mortgage, when such private
lender notes are issued for the purpose of refinancing or refunding any
notes secured under the Government mortgage, provided that all of the
following conditions are met:
(1) No default has occurred and is continuing under the Government
mortgage;
(2) The borrower has delivered to the Administrator, at least 10
business days before the private lender notes are to be executed, a
certification and agreement executed by the President of the borrower's
Board of Directors, such certification and agreement to be substantially
in the form set forth in Appendix A of this subpart, providing that:
(i) No default has occurred and is continuing under the Government
mortgage;
(ii) The principal amount of such refinancing or refunding notes will
not be greater than 112 percent of the then outstanding principal balance
of the notes being refinanced or refunded;
(iii) The weighted-average life of the private loan evidenced by the
private lender notes will not exceed the weighted-average remaining life
of the notes being refinanced or refunded;
(iv) The private lender notes will provide for substantially level debt
service or level principal amortization over a period not less than the
original remaining years to maturity;
(v) Except as provided in the Government mortgage, the borrower has not
agreed to any restrictions or limitations on future loans from RUS;
and
(vi) If the private lender determines that a supplemental mortgage is
necessary, the borrower will comply with those procedures contained in
paragraph (h) of this section for the preparation, execution, and delivery
of a supplemental mortgage and take such additional action as may be
required to secure the notes under the Government mortgage.
(d) Financing assets to be owned directly by a borrower. The
Administrator will automatically approve a borrower's execution of private
lender notes and the securing of such notes on a pari passu or pro-rata
basis with all other notes secured under the Government mortgage, when
such private lender notes are issued for the purpose of financing the
purchase or construction of plant and material and supplies to provide
telecommunication services and when such assets are to be owned and the
telecommunications services are to be offered by the borrower, provided
that all of the following conditions are met:
(1) The borrower has achieved a TIER of not less than 1.5 and a DSC of
not less than 1.25 for each of the borrower's two fiscal years immediately
preceding the issuance of the private lender notes;
(2) The ratio of the borrower's net plant to its total long-term debt
at the end of any calendar month ending not more than 90 days prior to
execution of the private lender notes is not less than 1.2, on a pro-forma
basis, after taking into account the effect of the private lender notes
and additional plant on the total long-term debt of the borrower;
(3) The borrower's equity percentage, as of the most recent fiscal
year-end, was not less than 25 percent;
(4) No default has occurred and is continuing under the Government
mortgage;
(5) The borrower has delivered to the Administrator, at least 10
business days before the private lender notes are to be executed, a
certification by an independent certified public accountant that the
borrower has met each of the requirements in paragraphs (d)(1) and (d)(3)
of this section, such certification to be substantially in the form in
Appendix B of this subpart; and
(6) The borrower has delivered to the Administrator, at least 10
business days before the private lender notes are to be executed, a
certification and agreement executed by the President of the borrower's
Board of Directors, such certification and agreement to be substantially
in the form in Appendix C of this subpart: provided, that:
(i) The borrower has met each of the requirements in paragraphs (d)(2)
and (d)(4) of this section;
(ii) The proceeds of the private lender notes are to be used for the
construction or purchase of the plant and materials and supplies to
provide telecommunications services in accordance with this section and
such construction or purchase is expected to be completed not later than 4
years after execution of such notes;
(iii) The weighted-average life of the private loan evidenced by the
private lender notes does not exceed the weighted-average remaining useful
life of the assets being financed;
(iv) The private lender notes will provide for substantially level debt
service or level principal amortization over a period not less than the
original remaining years to maturity;
(v) All of the assets financed by the private loans will be purchased
or otherwise procured in bona fide arm's length transactions;
(vi) The financing agreement with the private lender will provide that
the private lender shall cease the advance of funds upon receipt of
written notification from RUS that the borrower is in default under the
RUS loan documents;
(vii) Except as provided in the Government mortgage, the borrower has
not agreed to any restrictions or limitations on future loans from RUS;
and
(viii) If the private lender determines that a supplemental mortgage is
necessary, the borrower will comply with those procedures set forth in
paragraph (h) of this section for the preparation, execution, and delivery
of a supplemental mortgage and take such additional action as may be
required to secure the notes under the Government mortgage.
(e) Financing assets to be owned by a wholly-owned subsidiary of the
borrower. The Administrator will automatically approve a borrower's
execution of private lender notes and the securing of such notes on a pari
passu or pro-rata basis with all other notes secured under the Government
mortgage, when such private lender notes are issued for the purpose of
financing the purchase or construction of tangible plant and material and
supplies to provide telecommunication services and when such services are
to be offered and the associated tangible assets are to be owned by a
wholly-owned subsidiary of the borrower, provided that all of the
following conditions are met:
(1) The borrower has achieved a TIER of not less than 2.5 and a DSC of
not less than 1.5 for each of the borrower's two fiscal years immediately
preceding the issuance of the private lender notes;
(2) The ratio of the borrower's net plant to its total long-term debt
at the end of any calendar month ending not more than 90 days prior to
execution of the private lender notes is not less than 1.6, on a pro-forma
basis, after taking into account the effect of the private lender notes
and additional plant on the total long-term debt of the borrower;
(3) The borrower's equity percentage, as of the most recent fiscal
year-end, was not less than 45 percent;
(4) No default has occurred and is continuing under the Government
mortgage;
(5) The borrower has delivered to the Administrator, at least 10
business days before the private lender notes are to be executed, a
certification by an independent certified public accountant that the
borrower has met each of the requirements in paragraphs (e)(1) and (e)(3)
of this section, such certification to be substantially in the form in
Appendix D of this subpart; and
(6) The borrower has delivered to the Administrator, at least 10
business days before the private lender notes are to be executed, a
certification and agreement executed by the President of the borrower's
Board of Directors, such certification and agreement to be substantially
in the form in Appendix E of this subpart; providing that:
(i) The borrower has met each of the requirements in paragraphs (e)(2)
and (e)(4) of this section;
(ii) The proceeds of the private lender notes are to be used for the
construction or purchase of the tangible plant and materials and supplies
to provide telecommunications services in accordance with this section and
such construction or purchase is expected to be completed not later than 4
years after execution of such notes;
(iii) The weighted-average life of the private loan evidenced by the
private lender notes does not exceed the weighted-average remaining useful
life of the assets being financed;
(iv) The private lender notes will provide for substantially level debt
service or level principal amortization over a period not less than the
original remaining years to maturity;
(v) All of the assets financed by the private loans will be purchased
or otherwise procured in bona fide arm's length transactions;
(vi) The proceeds of the private lender notes will be lent to a
wholly-owned subsidiary of the borrower pursuant to terms and conditions
agreed upon by the borrower and subsidiary;
(vii) The borrower will, whenever requested by RUS, provide RUS with a
copy of the financing or guarantee agreement between the borrower and the
subsidiary or any similar or related material including security
instruments, loan contracts, or notes issued by the subsidiary to the
borrower;
(viii) The borrower will promptly report to the Administrator any
default by the subsidiary or other actions that impair or may impair the
subsidiary's ability to repay its loans;
(ix) The financing agreement with the private lender will provide that
the private lender shall cease the advance of funds upon receipt of
written notification from RUS that the borrower is in default under the
RUS loan documents;
(x) Except as provided in the Government mortgage, the borrower has not
agreed to any restrictions or limitations on future loans from RUS;
and
(xi) If the private lender determines that a supplemental mortgage is
necessary, the borrower will comply with those procedures contained in
paragraph (h) of this section for the preparation, execution, and delivery
of a supplemental mortgage and take such additional action as may be
required to secure the notes under the Government mortgage.
(f) Borrower notification. The borrower shall notify RUS of its
intention to obtain an automatic lien accommodation under �1744.30 by
providing the following:
(1) The board resolution cited in �1744.55(b)(1) and the opinion of
counsel cited in �1744.55(b)(2);
(2) The applicable certification or certifications required by
paragraph (c)(2); paragraphs (d)(5) and (d)(6); or paragraphs (e)(5) and
(e)(6), respectively, of this section, in substantially the form contained
in the applicable appendices to this subpart.
(g) RUS acknowledgment. Within 5 business days of receipt of the
completed certifications and any other information required under this
section, RUS will review the information and provide written
acknowledgment to the borrower and the private lender of its qualification
for an automatic lien accommodation. Upon receipt of the acknowledgment,
the borrower may execute the private lender notes.
(h) Supplemental mortgage. If the private lender determines that
a supplemental mortgage is required to secure the private lender notes on
a pari passu or pro-rata basis with all other notes secured under the
Government mortgage, the private lender may prepare the supplemental
mortgage using the form attached as Appendix F to this subpart or the
borrower may request RUS to prepare such supplemental mortgage in
accordance with the following procedures:
(1) The private lender preparing the supplemental mortgage shall
execute and forward the completed document to RUS. Upon ascertaining the
correctness of the form and the information concerning RUS, RUS will
execute and forward the supplemental mortgage to the borrower.
(2) When requested by the borrower, RUS will expeditiously prepare the
supplemental mortgage, using the form in Appendix F to this subpart, upon
submission by the private lender of:
(i) The name of the private lender;
(ii) The Property Schedule for inclusion as supplemental mortgage
Schedule B, containing legally sufficient description of all real property
owned by the borrower; and
(iii) The amount of the private lender note.
(3) The government is not responsible for ensuring that the
supplemental mortgage has been executed by all parties and is a valid and
binding instrument enforceable in accordance with its terms, and recorded
and filed in accordance with applicable law. If the private lender
determines that additional security instruments or other documents are
required or that RUS must take additional actions to secure the private
lender notes under the mortgage, the private lender shall follow the
procedures established in ��1744.40 or 1744.50, as appropriate. Except for
the actions of the government expressly established in �1744.40, the
government undertakes no obligation to effectuate an automatic lien
accommodation. When processing of the supplemental mortgage has been
completed to the satisfaction of the private lender, the borrower shall
provide RUS with the following:
(i) A fully executed counterpart of the supplemental mortgage,
including all signatures, seals, and acknowledgements; and
(ii) Copies of all opinions rendered by borrower's counsel to the
private lender.
(i) Other approvals. (1) The borrower is responsible for meeting
all requirements necessary to issue private lender notes and to
accommodate the lien of the Government mortgage to secure the private
lender notes including, but not limited to, those of the private lender,
of any other mortgagees secured under the existing RUS mortgage, and of
any governmental entities with jurisdiction over the issuance of notes or
the execution and delivery of the supplemental mortgage.
(2) To the extent that the borrower's existing mortgage requires RUS
approval before the borrower can make an investment in an affiliated
company, approval is hereby given for all investments made in affiliated
companies with the proceeds of private lender notes qualifying for an
automatic lien accommodation under paragraph (e) of this section. Any
reference to an approval by RUS under the mortgage shall apply only to the
rights of RUS and not to any other party.
[66 FR 41760, Aug. 9, 2001]
� 1744.40 Act purposes.
top
(a) Borrowers are encouraged to submit requests for accommodation of
the Government's lien on the borrower's system in order to facilitate
obtaining financing from private lenders for purposes provided in the RE
Act.
(b) The Administrator will consider requests for the subordination of
the Government's lien on after-acquired property which will enable
borrowers to obtain financing from private lenders for purposes provided
in the Act: Provided, however, that property integral to the operation of
projects financed with loans made or guaranteed by RUS shall be financed
with funds obtained through lien accommodations instead of lien
subordinations, unless the Administrator determines that it is in the
Government's interest to do otherwise.
[51 FR 32430, Sept. 12, 1986, unless otherwise noted. Redesignated at
55 FR 39396, Sept. 27, 1990. And further redesignated at 66 FR 41760, Aug.
9, 2001]
�� 1744.41-1744.49 [Reserved]
top
� 1744.50 Non-Act purposes.
top
(a) The Administrator will consider requests for the accommodation of
the Government's lien on the borrower's system or the subordination of the
Government's lien on after-acquired property which will enable the
borrowers to obtain financing from private lenders for the purpose of
providing new telecommunication services which may not be eligible for
financing under the Act if the Administrator is satisfied that:
(1) The borrower will have the ability to repay its existing and
proposed indebtedness;
(2) The security for outstanding Government loans and guarantees is
reasonably adequate and will not be adversely affected by the
accommodation or subordination; and
(3) Approval of the request is in the interests of the Government with
respect to the financial soundness of the borrower and other matters, such
as assuring that the borrower's system is constructed cost-effectively
using sound engineering practices.
(b) In determining that the security for outstanding Government loans
and guarantees is reasonably adequate and will not be adversely affected
by the accommodation or subordination the Administrator will consider,
among other matters, when applicable, the following:
(1) Market forecasts for the project;
(2) Projected revenues, expenses and net income of the borrower's
existing system and the project;
(3) Maximum debt service on indebtedness of both the borrower's system
and the project;
(4) Projected rate of return on the borrower's investment in the
project;
(5) Fair market value of property acquired by the borrower as part of
the project;
(6) Impact of the project on the ratio of the borrower's secured debt
to assets;
(7) Projected growth in borrower's system and project equity; and
(8) Amount of funds available for plant additions, replacements and
other similar costs of the system and the project.
(c) In determining whether the accommodation or subordination is in the
interests of the Government, the Administrator may consider, among other
matters, whether the project will improve the borrower's financial
strength and the assurance of repayment of Government debt.
[51 FR 32430, Sept. 12, 1986. Redesignated at 55 FR 39396, Sept. 27,
1990, and amended at 59 FR 43716, Aug. 25, 1994. Further redesignated at
66 FR 41760, Aug. 9, 2001 and amended at 66 FR 41763, Aug. 9, 2001]
�� 1744.51-1744.54 [Reserved]
top
� 1744.55 Application procedures.
top
(a) Requests for information regarding applications for lien
accommodations or subordination under this part should be addressed to the
Assistant Administrator, Telecommunications Program, Rural Utilities
Service, Washington, DC 20250�1590.
(b) An application for a lien accommodation or subordination shall
include the following supporting information:
(1) A board Resolution from the applicant requesting the lien
accommodation or subordination and stating the general purpose for which
the funds from the private lender will be used, the proposed amount of the
loan, and the proposed terms and conditions of the loan;
(2) An opinion from counsel representing the applicant that the
applicant has the authority under its articles of incorporation, bylaws,
and under applicable state law to undertake the project;
(3) Engineering and pertinent studies related to the projects or
purposes to be financed, when applicable;
(4) Feasibility studies with pro forma financial statements showing the
ability to repay the loan and provide an appropriate margin or net
income;
(5) Any other information or documentation deemed pertinent by the
borrower or the Administrator in support of the application.
(c) When the Administrator makes a determination that an application
for an accommodation or subordination will not be approved the
Administrator shall set forth the reasons therefor in writing and furnish
such determination and reasons to the borrower within 30 days of the
determination.
[51 FR 32430, Sept. 12, 1986 Redesignated at 55 FR 39396, Sept. 27,
1990. And further redesignated at 66 FR 41760, Aug. 9, 2001 and amended at
66 FR 41763, Aug. 9, 2001]
�� 1744.56-1744.59 [Reserved]
top
Appendix A to Subpart B of Part 1744�Statement, Certification, and
Agreement of Borrower's President of Board of Directors Regarding
Refinancing and Refunding Notes Pursuant to 7 CFR 1744.30(c)
top
View
or download PDF
[66 FR 41763, Aug. 9, 2001]
Appendix B to Subpart B of Part 1744�Certification of Independent
Certified Public Accountant Regarding Notes To Be Issued Pursuant to 7 CFR
1744.30(c)
top
View
or download PDF
[66 FR 41763, Aug. 9, 2001]
Appendix C to Subpart B of Part 1744�Statement, Certification, and
Agreement of Borrower's President of Board of Directors Regarding Notes To
Be Issued Pursuant to 7 CFR 1744.30(d)
top
View
or download PDF
[66 FR 41763, Aug. 9, 2001]
Appendix D to Subpart B of Part 1744�Certification of Independent
Certified Public Accountant Regarding Notes To Be Issued Pursuant to 7 CFR
1744.30
top
View
or download PDF
[66 FR 41763, Aug. 9, 2001]
Appendix E to Subpart B of Part 1744�Statement, Certification, and
Agreement of Borrower's President of Board of Directors Regarding Notes To
Be Issued Pursuant to 7 CFR 1744.30(e)
top
View
or download PDF
View
or download PDF
[66 FR 41763, Aug. 9, 2001]
Appendix F to Subpart B of Part 1744�Form of Supplemental
Mortgage
top
View
or download PDF
View
or download PDF
View
or download PDF
[66 FR 41763, Aug. 9, 2001]
Subpart C�Advance and Disbursement of Funds
top
Source: 54 FR 12186, Mar. 24, 1989,
unless otherwise noted. Redesignated at 55 FR 39396, Sept. 27,
1990.
� 1744.60 General.
top
(a) The standard loan documents (as defined in 7 CFR part 1758) contain
provisions regarding advances and disbursements of loan funds by telephone
borrowers. This part implements certain of the provisions by setting forth
requirements and procedures to be followed by borrowers in obtaining
advances and making disbursements of loan and nonloan funds.
(b) This part supersedes any sections of RUS Bulletins with which it is
in conflict.
� 1744.61 [Reserved]
top
� 1744.62 Introduction.
top
RUS is under no obligation to make or approve advances of loan funds
unless the borrower is in compliance with all terms and conditions of the
loan documents. The borrower shall use funds in its construction fund only
to make disbursements approved by RUS.
� 1744.63 The telephone loan budget.
top
When the loan is made, RUS provides the borrower a Telephone Loan
Budget, RUS Form 493. This budget divides the loan into budget accounts
such as �Engineering.� When a contract or other document is approved by
RUS, funds are encumbered from the appropriate budget account. See 7 CFR
part 1753.
� 1744.64 Budget adjustment.
top
(a) If more funds are required than are available in a budget account,
the borrower may request RUS's approval of a budget adjustment to use
funds from another account. The request shall include an explanation of
the change, the budget account to be used, and a description of how the
adjustment will affect loan purposes. RUS will not approve a budget
adjustment that affects other loan purposes unless the borrower satisfies
RUS that the additional funds are available from another source, requests
a deficiency loan, or scales back the project.
(b) RUS may make a budget adjustment without a formal request by the
borrower when a budget account is insufficient to encumber funds for a
contract that otherwise would be approved by RUS. See 7 CFR part
1753.
� 1744.65 The construction fund.
top
(a) The construction fund is used by the borrower primarily to hold
advances until disbursed.
(b) All advances shall be deposited in the construction fund.
(c) RUS may require that other funds be deposited in the construction
fund. These may include equity or general fund contributions to
construction, service termination payments, proceeds from the sale of
property, amounts recovered from insurance for losses during the
construction period, and interest received on loan funds in savings or
interest bearing checking accounts, and similar receipts. Deposit slips
for any deposit to the construction fund shall show the source and amount
of funds deposited and be executed by an authorized representative of the
bank.
(d) Funds shall be disbursed only up to the amount approved for advance
on the FRS as described in �1744.66. No funds may be withdrawn from the
fund except for loan purposes approved by RUS.
(e) The disbursement of nonloan funds requires the same RUS approvals
as loan funds.
(f) Disbursements must be evidenced by canceled checks. The invoices
and supporting documentation needed for construction contracts are
specified in the contracts and in 7 CFR part 1753. Disbursements to
reimburse the borrower's general funds shall be documented by a
reimbursement schedule, to be retained in the borrower's files,
that lists the construction fund check number, date, and an
explanation of amounts reimbursed by budget account.
� 1744.66 The financial requirement statement
(FRS).
top
(a) To request advances, the borrower must submit to RUS an FRS, a
description of the advances desired, and other information related to the
transactions when required by RUS.
(b) The FRS is used by RUS and the borrower to record and control
transactions in the construction fund. Approved contracts and other items
are shown on the FRS under �Approved Purposes.� Except as noted below, the
amount approved for advance is 100 percent of the amount encumbered for
that item. Funds are approved for advance as follows:
(1) Construction �(i) Construction contracts and force
account proposals. Ninety percent of the encumbered amount (95 percent
for outside plant), with the final 10 percent (5 percent) approved when
RUS approves the closeout documents. When a contract contains supplement
�A� (See 7 CFR part 1753), 90 percent (95 percent) of the contract is
approved less materials supplied by the borrower. For the Supplement �A�
materials, which are a separate entry on the FRS, 100 percent of the
material cost is approved.
(ii) Work orders. The portion of the work order summary (See 7
CFR part 1753) determined by RUS to be for approved loan purposes.
(iii) Work order fund. Based on a borrower's request as
described in 7 CFR part 1753.
(iv) Real estate. Upon request by the borrower after submission
of evidence of a valid title.
(v) Right of way procurement. Based on the borrower's itemized
costs.
(vi) Joint use charges. Based on copies of invoices from the
other utility.
(2) Engineering �(i) Preloan engineering. Based on a
final itemized invoice from the engineer.
(ii) Postloan engineering contracts. The amount shown on the
engineering estimate, RUS Form 506, less the amount estimated for
construction contract closeouts. The balance is approved when the
engineering contract is closed.
(iii) Force account engineering. Ninety percent of the total
amount of the RUS approved force account engineering proposal. The balance
is approved when the force account engineering proposal is closed.
(3) Office equipment, vehicles and work equipment. Based on
copies of invoices for the equipment.
(4) General �(i) Organization and loan expenditures.
Based on an itemized list of requirements prepared by the
borrower.
(ii) Construction overhead. Based on an itemized list of
expenditures. If funds are required for employee salaries, the itemization
shall include the employee's position, the period covered, total
compensation for the period, and the portion of compensation attributable
to the itemized construction.
(iii) Legal fees. Based on itemized invoices from the
attorney.
(iv) Bank stock. Based on the requirements for purchase of class
B Rural Telephone Bank stock established in the loan. Funds for class B
stock will be advanced in an amount equal to 5 percent of the amount,
exclusive of the amount for class B stock, of each loan advance, at the
time of such advance.
(5) Operating expenses �(i) Working capital�new system.
Based on the borrower's itemized estimate.
(ii) Current operating deficiencies. Based on a current and
projected balance sheet submitted by the borrower.
(6) Debt retirement and refinancing. Upon release of the loan,
based on the amount in the approved budget.
(7) Acquisitions. Based on final itemized costs, but cannot
exceed the amount in the approved loan budget.
(c) Funds other than loan funds deposited in the construction fund,
which shall include proceeds from the sale of property on which RUS has a
lien, (lines 10 and 11 on the FRS) are reported as a credit under total
disbursements. Disbursements of these funds are subject to the same RUS
approvals as loan funds.
(d) The borrower shall request advances as needed to meet its
obligations promptly. Generally, RUS does not approve an advance requested
more than 60 days before the obligation is payable.
(e) Funds should be disbursed for the item for which they were
advanced. If the borrower needs to pay an invoice for which funds have not
been advanced, and disbursement of advanced funds for another item has
been delayed, the latter funds may be disbursed to pay the invoice up to
the amount approved for advance for that item on the FRS. The borrower
shall make erasable entries on the next FRS showing the changes under
�Total Advances to Date� and shall explain the changes in writing before
RUS will process the next FRS.
(f) Advances will be rounded down to the nearest thousands of dollars
except for final amounts.
(g) The certification on each of the three copies of the FRS sent to
RUS shall be signed by a corporate officer of manager authorized by
resolution of the board of directors to sign such statements. At the time
of such authorization a certified copy of the resolution and one copy of
RUS Form 675, Certificate of Authority, shall be submitted to RUS.
(h) The documentation required for the FRS transactions are the deposit
slips, the canceled construction fund checks and the supporting invoices
or reimbursement schedules. These shall be kept in the borrower's files
for periodic audits by RUS.
[54 FR 12186, Mar. 24, 1989. Redesignated at 55 FR 39396, Sept. 27,
1990, as amended at 56 FR 26600, June 10, 1991]
� 1744.67 Temporary excess construction
funds.
top
(a) When unanticipated events delay the borrower's disbursement of
advanced funds, the funds may be used as follows:
(1) With RUS loan funds for loans approved prior to November 1, 1993,
or hardship loan funds, the borrower may invest the funds in 5 percent
Treasury Certificates of Indebtedness�RUS Series.
(2) With RUS cost-of-money, FFB or RTB loan funds, the following
apply:
(i) The borrower may invest the funds in short term securities issued
by the United States Treasury.
(ii) If permitted by state law, the borrower may deposit the funds in
savings accounts, including certificates of deposit, of federally insured
savings institutions.
(3) Funds advanced by a guaranteed lender other than the FFB may, if so
permitted by such lender, be invested under the terms and conditions
described above for FFB advances.
(4) Any security or investment made under this authorization shall
identify the borrower by its corporate name followed by the words
�Trustee, Rural Utilities Service.�
(5) All temporary investments and all income derived from them shall be
considered part of the construction fund and be subject to the same
controls as cash in that account.
(6) Securities and other investments shall have maturity dates or
liquidating provisions that ensure the availability of funds as required
for the completion of projects and the payment of obligations.
(7) Any instrument evidencing a security or other investment herein
authorized to be purchased or made, may not be sold, discounted, or
pledged as collateral for a loan or as security for the performance of an
obligation or for any other purpose.
(8) The Administrator may, at his sole discretion, require a borrower
to pledge any security or other evidence of investment authorized hereby
by forwarding to him all pertinent instruments and related documentation
as he may reasonably require.
(9) Borrowers shall be responsible for the safekeeping of securities
and other investments.
(b) All interest and income received from investments of temporary
excess funds, as described in this section, shall be deposited in the
Construction Fund.
(c) The borrower shall account for investment proceeds on the next FRS
submitted to RUS. RUS will make the necessary adjustments on budgetary
records.
(d) The Administrator reserves the right to suspend any borrower's
authorization to invest temporary excess funds contained herein if the
borrower does not comply with the requirements.
(e) For RUS loans approved prior to October 1, 1991, the borrower may
return advanced funds to RUS as a refund of an advance. Interest stops
accruing on the refunded advance upon receipt by RUS. A refunded advance
may be readvanced. A refund of an advance shall be sent to the Rural
Utilities Service, United States Department of Agriculture, Collections
and Custodial Section, Washington, DC, 20250. The borrower should clearly
indicate that this is a refund of an advance, and not a loan payment or
prepayment.
[54 FR 12186, Mar. 24, 1989. Redesignated at 55 FR 39395, Sept. 27,
1990, and amended at 58 FR 66257, Dec. 20, 1993]
� 1744.68 Order and method of advances of
telephone loan funds.
top
(a) Borrowers may specify the sequence of advances of funds under any
combination of approved telephone loans from RUS, RTB, or FFB, except that
for all loans approved on or after November 1, 1993, the borrower may use
loan funds:
(1) Only for purposes for which that type of loan (i.e. Hardship, RUS
cost-of-money, RTB, or FFB) may be made; and
(2) Only in exchanges that qualify for the type of loan from which the
funds are drawn.
(b) The first or subsequent advances of loan funds may be conditioned
on the satisfaction of certain requirements stated in the borrower's loan
contract.
(c) Normally, only one payment is made by the Automatic Clearing House
(ACH) for an advance of funds.
(d) Borrowers of RUS and RTB funds may request advances by wire service
only for amounts greater than $500,000 or for advances to borrowers
outside the Continental United States. FFB advances in any amount over
$100,000 can be sent by wire service.
(e) The following information shall be included with the FRS:
(1) Name and address of borrower's bank.
(2) If borrower's bank is not a member of the Federal Reserve System,
the name and address of its correspondent bank that is a member of the
Federal Reserve System.
(3) American Bankers Association (ABA) nine digit identifier of the
receiving banks (routing number and check digit).
(4) Borrower's bank account title and number.
(5) Any other necessary identifying information.
[54 FR 12186, Mar. 24, 1989. Redesignated at 55 FR 39395, Sept. 27,
1990, and amended at 58 FR 66257, Dec. 20, 1993]
� 1744.69 [Reserved]
top
Subpart D [Reserved]
top
Subpart E�Borrower Investments
top
Source: 58 FR 52642, Oct. 12, 1993,
unless otherwise noted.
� 1744.200 General statement.
top
(a) RUS telephone borrowers are encouraged to utilize their own funds
to participate in the economic development of rural areas, provided that
such activity does not impair a borrower's ability to provide modern
telecommunications services at reasonable rates or to repay its
indebtedness to RUS and other lenders. When considering loans,
investments, or guarantees, borrowers are expected to act in accordance
with prudent business practices and in conformity with the laws of the
jurisdictions in which they serve.
(b) This subpart E applies to both RUS and RTB borrowers. For the
purposes of RTB borrowers, as used in this subpart E, if a borrower has
received a loan from the RTB, RUS means RTB, and Administrator means
Governor unless the text indicates otherwise.
� 1744.201 Definitions.
top
As used in this subpart:
Administrator means the Administrator of the Rural Utilities
Service (RUS) and, as provided in �1744.200(b), the Governor of the Rural
Telephone Bank (RTB).
Advance means any funds provided of which repayment is
expected.
Affiliated company means any 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 by RUS or RTB, or guaranteed by RUS, or which is seeking such
financing.
Extension of credit means to make loans or advances.
Guarantee means to undertake collaterally to answer for the
payment of another's debt or the performance of another's duty, liability,
or obligation, including, without limitation, the obligations of
affiliated companies. Some examples of such guarantees would include:
(1) Guarantees of payment or collection on a note or other debt
instrument;
(2) Issuing performance bonds or completion bonds; or
(3) Cosigning leases or other obligations of third parties.
Maximum investment ratio means that the aggregate of all
qualified investments by the borrower including the proposed qualified
investment shall not be more than one-third of the net worth of the
borrower.
Minimum total assets ratio means the borrower's net worth is at
least twenty percent of its total assets including the proposed qualified
investment.
Net plant means the sum of the balances of the following
accounts of the borrower:
| Account Names |
Number |
| (1) Telecommunications
plant in service |
2001 |
| (2) Property held for
future telecommunications use |
2002 |
| (3) Telecommunications
plant under construction-short term |
2003 |
| (4) Telecommunications
plant under construction-long term |
2004 |
| (5) Telecommunications
plant adjustment |
2005 |
| (6) Nonoperating plant |
2006 |
| (7) Goodwill |
2007 |
| (8) Less accumulated
depreciation |
3100 through 3300s |
| (9) Less accumulated
amortization |
3400 through
3600s |
Net worth means the sum of the balances of the following
accounts of the borrower:
| Account Names |
Number |
| (1) Capital stock |
4510 |
| (2) Additional paid-in
capital |
4520 |
| (3) Treasury stock |
4530 |
| (4) Other capital |
4540 |
| (5) Retained earnings |
4550 |
Qualified investment is defined in �1744.202(b).
RE Act means the Rural Electrification Act of 1936, as amended
(7 U.S.C. 901 et seq. ).
REA means the Rural Electrification Administration formerly an
agency of the United States Department of Agriculture and predecessor
agency to RUS with respect to administering certain electric and telephone
loan programs.
RTB means the Rural Telephone Bank, an agency and
instrumentality of the United States within the United States Department
of Agriculture.
Rural development investment is defined in �1744.202(d).
RUS means the Rural Utilities Service, an agency of the United
States Department of Agriculture established pursuant to Section 232 of
the Federal Crop Insurance Reform and Department of Agriculture
Reorganization Act of 1994 (Pub. L. 103�354, 108 Stat. 3178), successor to
REA with respect to administering certain electric and telephone programs.
See 7 CFR 1700.1.
RUS mortgage means the instrument creating a lien on or security
interest in the borrower's assets in connection with a loan made or
guaranteed under the RE Act.
Total assets means the sum of the balances of the following
accounts of the borrower:
| Account Names |
Number |
| (1) Current assets |
1100s through 1300s |
| (2) Noncurrent assets |
1400s through 1500s |
| (3) Total
telecommunications plant |
2001 through 2007 |
| (4) Less accumulated
depreciation |
3100 through 3300s |
| (5) Less accumulated
amortization |
3400 through
3600s |
Uniform System of Accounts means the Federal Communications
Commission Uniform System of Accounts for Telecommunications Companies (47
CFR part 32) as supplemented by 7 CFR Part 1770, Accounting Requirements
for RUS Telephone Borrowers.
[58 FR 52642, Oct. 12, 1993, as amended at 59 FR 66440, Dec. 27,
1994]
� 1744.202 Borrowers may make qualified
investments without prior approval of the Administrator.
top
(a) A borrower that equals or exceeds the minimum total assets ratio
may make a qualified investment, defined in paragraph (b) of this section
without prior written approval of the Administrator.
(b) A qualified investment is a rural development investment, defined
in paragraph (d) of this section meeting the following criteria:
(1) Unless the borrower's commitment is a guarantee, extension of
credit, or advance, the borrower receives any financial return accruing to
such investment, or the borrower's proportionate share of such return;
(2) Unless the borrower's commitment is a guarantee, extension of
credit, or advance, the borrower retains title to any asset acquired with
such investment, or the borrower's proportionate share of such title;
and
(3) The funds committed are the borrower's own funds. As used in this
subpart, the term own funds shall not include proceeds of loans made,
guaranteed or lien accommodated by RUS; funds necessary to make timely
payments of principal and interest on loans made, guaranteed or lien
accommodated by RUS; and funds on deposit in the cash construction
fund-trustee account, as defined in the borrower's loan contract with
RUS.
(c) A rural development investment will not be considered to be a
qualified investment to the extent that the amount of such investments
exceeds the borrower's maximum investment ratio.
(d) A rural development investment is an investment, extension of
credit, advance, or guarantee by a borrower for a period longer than one
year and for one or more of the following purposes:
(1) Improve the economic well-being of rural residents and alleviate
the problems of low income, elderly, minority, and otherwise disadvantaged
rural residents;
(2) Improve the business and employment opportunities, occupational
training and employment services, health care services, educational
opportunities, energy utilization and availability, housing,
transportation, community services, community facilities, water supplies,
sewage and solid waste management systems, credit availability, and
accessibility to and delivery of private and public financial resources in
the maintenance and creation of jobs in rural areas;
(3) Improve state and local government management capabilities,
institutions, and programs related to rural development and expand
educational and training opportunities for state and local officials,
particularly in small rural communities;
(4) Strengthen the family farm system; or
(5) Maintain and protect the environment and natural resources of rural
areas.
(e) As used in paragraph (d) of this section, the term rural
development investment shall include investments by a borrower in its own
name, in affiliated companies, and in entities not affiliated with the
borrower.
� 1744.203 Establishing amount of rural
development investment.
top
For purposes of determining whether a rural development investment is
within the limits of the borrower's maximum investment ratio or the
minimum total assets ratio, the amount of the qualified investment shall
be the total amount of funds committed to the rural development project as
of the date of determination. The total amount of funds committed to the
rural development project includes:
(a) The principal amount of loans and advances made by the
borrower;
(b) Guarantees made by the borrower; and
(c) A reasonable estimate of the amount the borrower is committed to
provide to the rural development project in future years.
� 1744.204 Rural development investments that do
not meet the ratio requirements.
top
(a) Each borrower is authorized to make investments other than
qualified investments only in accordance with the provisions of the
borrower's mortgage with RUS. Without RUS's approval, the portion of any
investment of funds or commitment to invest funds for any rural
development investment that will exceed the borrower's maximum investment
ratio or cause the borrower to fall below the minimum total assets ratio,
must comply with the provisions of the RUS mortgage.
(b) RUS will consider, on a case-by-case basis, requests for approval
of rural development investments not constituting qualified investments.
RUS may condition such approval, if granted, on such requirements and
restrictions as RUS may determine to be in the best interests of the
Government, including, without limitation, the borrower's agreement to
limit dividends or distributions of capital by an amount specified by RUS.
Requests for such approvals must be submitted in writing to the relevant
RUS regional office and shall include:
(1) A description of the rural development project and the type of
investment to be made, such as a loan, guarantee, stock purchase or equity
investment;
(2) A reasonable estimate of the amount the borrower is committed to
provide to the rural development project including investments that may be
required in the future; and
(3) A pro forma balance sheet and cash flow statement for the period
covering the borrower's future commitments to the rural development
project.
(c) In determining whether to approve a rural development investment
that may cause the borrower to exceed the maximum investment ratio or to
fall below the minimum total assets ratio in the future, RUS will consider
annual increases to the borrower's net worth and total assets as might be
reasonably anticipated from the borrower's normal operations.
� 1744.205 Determinations and application of
limitations described in �1744.202.
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(a) RUS will not include qualified investments, including qualified
investments in affiliated companies, in calculating the amount of dividend
or capital distributions a borrower may make under its RUS mortgage.
(b) A borrower's investment in its net plant shall not be considered a
rural development investment for purposes of calculating the maximum
investment ratio or the minimum total assets ratio.
(c) The borrower's net worth and total assets shall be determined using
the balances of the respective accounts of the borrower as of December 31
of the last complete calendar year preceding the date on which the
borrower's maximum investment ratio and minimum total assets ratio are
calculated.
(d) All determinations required to be made under 7 U.S.C. 926 or this
subpart will be made in accordance with the Uniform System of Accounts
(USoA)(47 CFR part 32). References to specific USoA accounts shall include
revised or replacement accounts.
� 1744.206 Effect of subsequent failure to
maintain ratios.
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If an expenditure constitutes a qualified investment under the terms of
this subpart, it does not cease to be a qualified investment merely
because subsequently the borrower fails to maintain the maximum investment
ratio or the minimum total assets ratio.
� 1744.207 Investment not to jeopardize loan
security.
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A borrower shall not make a qualified investment or a rural development
investment which jeopardizes:
(a) The security of loans made or guaranteed by RUS; or
(b) The borrower's ability to repay such loans under the terms and
conditions as agreed.
� 1744.208 Rural development investments before
November 28, 1990.
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All investments made by a borrower shall be subject to the provisions
of this subpart, regardless of when the investment was made or whether it
has been approved by RUS. Any restrictions required by RUS as a condition
to approving a rural development investment before November 28, 1990,
shall continue to be in effect to the extent that such investment exceeds
the maximum investment ratio or causes the borrower to fall below the
minimum total assets ratio.
� 1744.209 Records.
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(a) The records of borrowers, including records relating to qualified
investments, shall be subject to the auditing procedures prescribed in
part 1773 of this chapter. RUS reserves the right to review the records of
the borrower relating to qualified investments to determine if the
borrower is in compliance with this subpart.
(b) Borrowers shall report to RUS on the end-of-year operating report,
RUS Form 479, the current status and principal amount of each qualified
investment it has made or is committed to make pursuant to
�1744.202.
(Approved by the Office of Management and Budget under
control number 0572�0098)
� 1744.210 Effect of this subpart on RUS loan
contract and mortgage.
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(a) Except as expressly provided in this subpart, the borrower shall
comply with all provisions of its loan contract with RUS, its notes issued
to RUS, and the RUS mortgage, including all provisions thereof relating to
investments not covered by this subpart.
(b) Nothing in this subpart shall affect any rights of supplemental
lenders under the RUS mortgage, or other creditors of the borrower, to
limit a borrower's investments, loans and guarantees to levels below those
permitted in �1744.202.
(c) As used in paragraph (b) of this section, supplemental lender means
a creditor of the borrower, other than RUS, whose loan to the borrower is
secured by the RUS mortgage.
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