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Data is current as of July 19, 2012

Title 7:
Agriculture

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PART 1786—PREPAYMENT OF RUS GUARANTEED AND INSURED LOANS TO ELECTRIC
AND TELEPHONE BORROWERS

Section Contents

Subpart
A—General [Reserved]
§§ 1786.1-1786.24   [Reserved]

Subpart
B—Prepayment of RUS Guaranteed Federal Financing Bank Loans Pursuant to
Section 306(A) of the RE Act
§ 1786.25   Purpose.
§ 1786.26   Policy.
§ 1786.27   Definitions
and rules of construction.
§ 1786.28   Qualifications.
§ 1786.29   Prepayment
authority, program allocations, categories of prepayment applications and
financially distressed borrowers' reserve.
§ 1786.30   Processing
procedure.
§ 1786.31   Application
procedure.
§ 1786.32   Settlement
procedure.
§ 1786.33   Forms.
§ 1786.34   Access
to records of lenders, servicers, and trustees.
§ 1786.35   Loss,
theft, destruction, mutilation, or defacement of RUS
guarantee.
§ 1786.36   Other
prepayments.
§ 1786.37   Application
of regulation to previous prepayments.
§ 1786.38   Judicial
review.
§§ 1786.39-1786.49   [Reserved]

Subpart
C—Special Discounted Prepayments on RUS Direct/Insured
Loans
§ 1786.50   Purpose.
§ 1786.51   Definitions.
§ 1786.52   Prepayment.
§ 1786.53   Discounted
present value.
§ 1786.54   Eligibility
criteria.
§ 1786.55   Application
procedure.
§ 1786.56   Approval
of applications.
§ 1786.57   Prepayment
agreement.
§ 1786.58   Security.
§ 1786.59   Loan
fund audit.
§ 1786.60   Closing.
§ 1786.61   Other
prepayments.
§§ 1786.62-1786.74   [Reserved]

Subpart
D [Reserved]

Subpart
E—Discounted Prepayments on RUS Notes in the Event of a Merger of Certain
RUS Electric Borrowers
§ 1786.95   Purpose.
§ 1786.96   Definitions.
§ 1786.97   Prepayment.
§ 1786.98   Discounted
present value.
§ 1786.99   Eligibility
criteria.
§ 1786.100   Application
procedure.
§ 1786.101   Approval
of application.
§ 1786.102   Prepayment
agreement.
§ 1786.103   Security.
§ 1786.104   Loan
fund audit.
§ 1786.105   Closing.
§ 1786.106   Other
prepayments.
Appendix
A to Subpart E of Part 1786—Listing of Eligible
Borrowers
Appendix
B to Subpart E of Part 1786—Federal Reserve Statistical
Release

Subpart
F—Discounted Prepayments on RUS Electric
Loans
§ 1786.150   Purpose.
§ 1786.151   Definitions
and rules of construction.
§ 1786.152   Prepayments
of RUS loans.
§ 1786.153   Discounted
present value.
§ 1786.154   Qualified
Notes.
§ 1786.155   Eligible
borrower.
§ 1786.156   Application
procedure.
§ 1786.157   Approval
of applications.
§ 1786.158   Terms
and conditions of prepayment agreement.
§ 1786.159   Initial
closing.
§ 1786.160   Subsequent
closings.
§ 1786.161   Return
of Qualified Notes and release of lien.
§ 1786.162   Outstanding
loan documents.
§ 1786.163   Existing
wholesale power contracts.
§ 1786.164   Loan
fund audit.
§ 1786.165   Reporting.
§ 1786.166   Approvals.
§ 1786.167   Restrictions
to additional RUS financing.
§ 1786.168   Borrowers
who prepaid under this part prior to October 21, 1992.
§ 1786.169   Liability.
§ 1786.170   Prepayment
of loans approved after December 20, 1993. [Reserved]
§§ 1786.171-1786.199   [Reserved]

Subpart
G—Refinancing and Prepayment of RUS Guaranteed FFB Loans Pursuant to
Section 306(C) of the RE Act
§ 1786.200   Purpose.
§ 1786.201   Definitions
and rules of construction.
§ 1786.202   Prepayment
and refinancing of RUS guaranteed FFB loans.
§ 1786.203   Special
considerations.
§ 1786.204   Limitations.
§ 1786.205   Application
procedure.
§ 1786.206   Refinancing
note.
§ 1786.207   Prepayment
premium.
§ 1786.208   Increased
principal.
§ 1786.209   Outstanding
loan documents.
§ 1786.210   Approvals.

Authority:   7 U.S.C. 901–950b; Title I,
subtitle B, Pub. L. 99–509; Pub. L. 101–624, 104 Stat. 4051; Pub. L.
103–354, 108 Stat. 3178, (7 U.S.C. 6941 et seq.), unless otherwise
noted.

Source:   55 FR 1145, Jan. 11, 1990,
unless otherwise noted.

Subpart A—General [Reserved]

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§§ 1786.1-1786.24   [Reserved]

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Subpart B—Prepayment of RUS Guaranteed Federal Financing Bank Loans
Pursuant to Section 306(A) of the RE Act

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Authority:   7 U.S.C. 901–950b; Title I,
Subtitle B, Pub. L. 99–509; Title I, Pub. L. 100–202; Pub. L. 100–203;
Title VI, Pub. L. 100–460; Pub. L. 103–354, 108 Stat. 3178 (7 U.S.C. 6941
et seq.).

Source:   55 FR 1145, Jan. 11, 1990,
unless otherwise noted. Redesignated at 55 FR 49250, Nov. 27,
1990.

§ 1786.25   Purpose.

top

This subpart contains the general regulations of the Rural Utilities
Service (RUS) for implementing the provisions of (a) section 306(A) of the
Rural Electrification Act of 1936, as amended (RE Act); (b) section 633 of
the Rural Development, Agriculture, and Related Agencies Appropriations
Act, 1988 (Pub. L. 100–202) (the continuing resolution); and (c) section
637 of the Rural Development, Agriculture, and Related Agencies
Appropriations Act, 1989 (Pub. L. 100–460) (the 1989 Appropriations Act)
which permit, in certain circumstances, loans made by the Federal
Financing Bank (FFB) and guaranteed by the Administrator of RUS to be
prepaid by RUS electric and telephone borrowers by paying the outstanding
principal balance due on the FFB loan, using a private loan with the
existing RUS guarantees or using internally generated funds.

§ 1786.26   Policy.

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It is the policy of RUS to facilitate the prepayment of FFB loans in
accordance with the provisions of section 306(A) of the RE Act and section
633 of the continuing resolution as modified by section 637 of the 1989
Appropriations Act. Furthermore, consistent with the RE Act, the
continuing resolution and the 1989 Appropriations Act, it is the policy of
RUS to implement the objectives of the prepayment program in a manner
which does not result in an increase in loan guarantee risk or an
inappropriate increase in the administrative burden on RUS.

§ 1786.27   Definitions and rules of
construction.

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(a) Definitions. For the purposes of this subpart, the following
terms shall have the following meanings:

Administrator means the Administrator of RUS.

Application Category shall have the meaning set forth in
§1786.29(c).

Application period means a period during which RUS is accepting
applications to make prepayments pursuant to this subpart, and initially
means:

(1) In the case of telephone borrowers, the period commencing on
February 12, 1990 and ending on March 12, 1990;

(2) In the case of financially distressed borrowers, the period
commencing October 1, 1990 and ending on July 30, 1993; or

(3) In the case of other borrowers, the period to be announced by
RUS.

Borrower means any organization which has an outstanding FFB
loan guaranteed by RUS under the RE Act.

Business Day means any day other than a Saturday, a Sunday, a
legal public holiday under 5 U.S.C. section 6103 for the purposes of
statutes relating to pay and leave of employees, or any other day declared
to be legal holiday for the purposes of statutes relating to pay and leave
of employees by Federal statute or Federal Executive Order.

Continuing Resolution means section 633 of the Rural
Development, Agriculture, and Related Agencies Appropriations Act, 1988
(Pub. L. 100–202).

Date Received means the date inscribed on the Notice of Intent
to Prepay the Federal Financing Bank, by an authorized official of RUS, as
the date the application was received.

Documentation means all or part of the agreements relating to a
prepayment under this part, irrespective of whether RUS is a party to each
agreement, including all exhibits to such agreements.

Electric Program Applications shall have the meaning specified
in §1786.29(c)(1).

Existing Loan Guarantee means a guarantee of payment issued by
RUS to FFB pursuant to the RE Act for an FFB loan made on or before July
2, 1986.

Fees means any fees, costs or charges, incurred in connection
with obtaining the private loan used to make the prepayment including
without limitation, accounting fees, filing fees, legal fees (including
fees and disbursements charged by counsel representing the borrower),
printing costs, recording fees, trustee fees, underwriting fees, capital
stock purchases or other equity investment requirements of the lender, and
other related transaction expenses.

Financially Distressed Borrower means an RUS-financed electric
system determined by the Administrator to be either (1) in default or near
default on interest or principal payments due on loans made or guaranteed
under the RE Act, and is making a good faith effort to increase rates and
reduce costs to avoid or mitigate default; or (2) participating in a work
out or debt restructuring plan with RUS, either as the borrower being
restructured or as a borrower providing assistance as part of the work out
or restructuring.

Financially Viable Lender means:

(1) A lender (i) which has a capital and surplus of at least $50
million; (ii) is a beneficiary of an irrevocable letter of credit, in form
and substance satisfactory to the Administrator, payable to it in the
amount of $50 million; (iii) is the beneficiary of a guarantee, in form
and substance satisfactory to the Administrator, in the amount of $50
million from a lending institution with a capital and surplus of at least
$50 million; or (iv) has other credit support, in form and substance
satisfactory to the Administrator, in the amount of $50 million; or

(2) In the event of a prepayment totalling less than $100 million, a
lender (i) which has a capital and surplus of at least $10 million; (ii)
is a beneficiary of an irrevocable letter of credit, in form and substance
satisfactory to the Administrator, payable to it in the amount of $10
million; (iii) is the beneficiary of a guarantee, in form and substance
satisfactory to the Administrator, in the amount of $10 million from a
lending institution with a capital and surplus of at least $10 million; or
(iv) has other credit support, in form and substance satisfactory to the
Administrator, in the amount of $10 million;

FFB means the Federal Financing Bank, an instrumentality and
wholly owned corporation of the United States.

FFB Loan means one or more advances, or a part of one or more
advances, made on or before July 2, 1986, by FFB on a promissory note or
notes executed by a borrower and guaranteed by RUS pursuant to section 306
of the RE Act (7 U.S.C. 936).

Guarantee means the original endorsement, in the form specified
by RUS which is executed by the Administrator and shall be an obligation
supported by the full faith and credit of the United States and
incontestable except for fraud or misrepresentation of which the holder
had actual knowledge at the time it became a holder.

Increase in Loan Guarantee Risk means the change in any of the
components of loan guarantee risk associated with the private loan which
in the judgment of RUS increases the magnitude or duration of the loan
guarantee risk currently assumed by RUS in connection with the existing
loan guarantee;

Internally Generated Funds means money belonging to the borrower
other than: (1) Proceeds of loans made or guaranteed under the RE Act or
(2) funds on deposit in the cash construction trustee account;

Lender means the organization making and servicing the private
loan which is to be guaranteed under the provisions of this subpart and
used to prepay the FFB loan. The term lender does not include the
FFB, or any other Government agency.

Loan Guarantee Agreement means the written contract by and among
the lender, the borrower, the Administrator, and such other parties that
RUS may require, setting forth the terms and conditions of a guarantee
issued pursuant to the provisions of this subpart.

Loan Guarantee Risk means the risk as determined by RUS
associated with guaranteeing a loan for a particular borrower. Components
of loan guarantee risk include the following:

(1) The outstanding principal balance of a loan;

(2) The dollar weighted average interest rate (stated as an annual
percentage rate) on a loan;

(3) The final maturity date of a loan;

(4) The annual principal amortization of the loan; and

(5) Any other factor that as determined by RUS increases the magnitude
or duration of the guarantee.

Mortgage means the mortgage and security agreements by and among
the borrower and RUS, as from time to time supplemented, amended and
restated.

1989 Appropriations Act means the Rural Development,
Agriculture, and Related Agencies Appropriations Act, 1989 (Pub. L.
100–460).

Notice of Intent to Prepay the Federal Financing Bank means the
notice in the form specified in §1786.33 hereof.

Prepayment Authority shall have the meaning specified in
§1786.29(a).

Private Loan means a loan or loans to be guaranteed under the
provisions of this part and used to prepay an FFB loan.

Pro-rated Percentage shall have the meaning specified in
§1786.30(b)(1).

RE Act means the Rural Electrification Act of 1936 (7 U.S.C.
901–950b), as amended.

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.

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.

Service or Servicing means the following activities:

(1) The billing and collecting of the private loan payments from the
borrower;

(2) Notifying the Administrator promptly of any default in the payment
of principal and interest on the private loan and submitting a report, as
soon as possible thereafter, setting forth the servicer's views as to the
reasons for the default, how long the servicer expects the borrower to be
in default, and what corrective actions the borrower states it is taking
to achieve a current debt service position;

(3) Notifying the Administrator of any known violations or defaults by
the borrower under the lending agreement, loan guarantee agreement, the
mortgage, or related security instruments, or conditions of which the
servicer or the lender is aware which might lead to nonpayment, violation
or other default; and

(4) Such other activities as may be specified in the loan guarantee
agreement.

Settlement Date means the date the borrower disburses funds to
the FFB in order to complete a prepayment pursuant to this subpart, and
shall be a date agreed to by RUS, and a date on which both the FFB and the
Federal Reserve Bank of New York are open for business.

Standard Electric Program Application shall have the meaning
specified in §1786.29(c)(1).

Telephone Borrower means a borrower that provides telephone
service as defined in 7 CFR 1735.2(a).

Telephone Program Applications shall have the meaning specified
in §1786.29(c)(2).

(b) Rules of Construction. Unless the context shall otherwise
indicate, the terms defined in §1786.27(a) hereof include the plural as
well as the singular, and the singular as well as the plural. The words
“herein,” “hereof” and “hereunder”, and words of similar import, refer to
this subpart as a whole.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35426, Aug. 30, 1990.
Redesignated at 55 FR 49250, Nov. 27, 1990, as amended at 59 FR 66440,
Dec. 27, 1994]

§ 1786.28   Qualifications.

top

(a) Borrowers. To qualify to prepay an FFB loan pursuant to this
subpart, the borrower must:

(1) Demonstrate that the FFB loan was outstanding on July 2, 1986;

(2) Prepay the FFB loan by:

(i) Using a private loan with the existing loan guarantee;

(ii) Using internally generated funds; or

(iii) Using a combination of a private loan with the existing loan
guarantee and internally generated funds; and

(3) Certify that any savings resulting from such prepayment will be
passed on to its customers, or used to improve the financial strength of
the borrower in cases of financial hardship.

(b) Lenders. To participate pursuant to this subpart, in a
borrower's prepayment of an FFB loan by means of a private loan, the
lender must:

(1) Be a private legally organized lender, or a lender established
pursuant to the Farm Credit Act of 1971, as amended;

(2)(i) Be subject to credit examination and supervision by either an
agency of the United States or a state and be in good standing with its
licensing authority and have met the requirements, if any, of licensing,
lending and loan servicing in the state where the collateral for the Loan
is located;

(ii) Be a financially viable lender; or

(iii) Be a trust administered. by an entity meeting the requirements of
paragraph (b)(2) (i) or (ii) of this section; and

(3) Have the capability to adequately service the private loan either
by using its own resources or by contracting for such resources with a
financially viable lender. Under no circumstances may the borrower or an
affiliate of the borrower service the private loan. A qualified lender may
participate out each private loan to entities other than a Government
agency, the borrower, or an affiliate of the borrower, provided that such
participation shall be on terms and conditions satisfactory to the
Administrator.

(c) Private Loans. A borrower who qualifies pursuant to
§1786.28(a) may at its option elect to use a private loan to make a
prepayment, or a portion of a prepayment, pursuant to this subpart.
Private loans, the proceeds of which are used exclusively to prepay FFB
loans, shall be eligible for a guarantee under this subpart. The
Administrator shall endorse a guarantee on each note evidencing a
qualifying private loan. The private loan shall be structured in a manner
which in the judgment of RUS shall not result in an increase in loan
guarantee risk and shall comply with the following:

(1) The private loan shall provide for the periodic payment of interest
by the borrower not less frequently than annually, at either a variable or
fixed rate in a manner which shall not result in an increase in loan
guarantee risk. (i.e. The dollar weighted average interest rate on the
private loan shall be less than or equal to the dollar weighted average
interest rate on the FFB loan being prepaid, so that:

Where,

Cr=The revised interest rate cap;

Co=The original interest rate cap at the time of
prepayment;

Ai=The average interest rate actually charged in the ithperiod;

Ti=Length of the ithperiod expressed in
years;

n=The number of years that have elapsed since the initial
prepayment;

J=The initial term of the private loan, at the time of prepayment;

Subject to the constraint that A1must be less or equal to
Co).

(2) Principal payments on the private loan shall be made either
quarterly, semiannually, or annually and shall commence on or before the
last day of the calendar year during which the prepayment pursuant to this
subpart was made.

(3) With the approval of the Administrator, the lender may refund the
private loan with the proceeds of another loan from the same lender, with
the existing guarantee and under terms, conditions, and a structure
substantially similar to the private loan, on such dates as the lender,
the borrower and RUS may agree, provided however, that such a refunding
loan shall comply with the provisions of §1786.28(c) hereof. Additionally,
with the approval of the Administrator, the private loan may be prepaid
either in whole or in part at any time by the borrower using its general
funds.

(4) The private loan and the guaranteed note evidencing the private
loan shall not be directly or indirectly part of a transaction the income
of which is excluded from gross income for the purposes of Chapter I of
the Internal Revenue Code of 1986.

(5) The guaranteed note evidencing the private loan shall not be
transferable or assignable except

(i) With the written approval of the Administrator;

(ii) In the event that the guaranteed note evidencing the private loan
is held by a trust, to a similar trust, in connection with a refunding
loan made by the lender pursuant to §1786.28(c)(3); or

(iii) As an undivided pro rata interest in a pool of obligations.

(6) The loan documentation shall provide RUS with the right to
accelerate the note evidencing the private loan upon the occurrence of any
“Event of Default” under the mortgage with the effect that all of the
unpaid principal and interest on any such note shall become immediately
due and payable to RUS, and RUS shall continue to pay under its guarantee
the principal of and interest on such note without taking into account
such acceleration. The loan documentation shall also provide RUS with a
right, upon the occurrence of such an “Event of Default,” to accelerate
payment on its guarantee and accelerate payment on the note evidencing the
private loan on the earlier of any date the interest rate on the private
loan is reset, without premium or penalty; any date the borrower may
prepay in accordance with the terms of the private loan, or the tenth
anniversary of the date the private loan first bears interest at a fixed
interest rate.

(7) The principal of the private loan shall not include amounts
attributable to fees associated with the private loan. At the time it
submits its application, a borrower may request that the Administrator
approve the inclusion of amounts attributable to fees as part of the
interest rate on the private loan, if the net effective interest rate
including such fees meets the test contained in §1786.28(c)(1). For the
purposes of these regulations, such financed fees shall be considered
“interest”.

(8) Private loans and guaranteed notes evidencing private loans shall
otherwise be in form and substance satisfactory to the Administrator.

(d) Prepayments Without a Guarantee. Qualifying borrowers may
elect to utilize internally generated funds without a guarantee to prepay
an FFB loan, or partially prepay an FFB loan, pursuant to this subpart,
if

(1) The borrower notifies RUS, of its intent to prepay using internally
generated funds in accordance with the application procedures set forth in
this subpart; and

(2) The borrower submits a certification to RUS that the prepayment
does not, materially adversely affect the financial stability of the
borrower and its ability to meet all its obligations, including debt
service on all loans made, guaranteed or lien accommodated under the RE
Act which will remain outstanding after the date of the prepayment.

(e) The Use of both a Private Loan and Internally Generated Funds.
Qualifying borrowers may elect to utilize a combination of private
loans and internally generated funds without a guarantee, to prepay an FFB
loan pursuant to this subpart, if

(1) The private loans comply with the provisions of paragraph (c) of
this section, and

(2) The borrower complies with paragraph (d) of this section.

(f) FFB loans. A borrower's FFB loans that qualify to be prepaid
pursuant to this subpart are:

(1) Qualifying Borrowers. In the case of qualifying borrowers
other than financially distressed borrowers, FFB advances with long-term
maturity dates may be prepaid pursuant to this subpart; and

(2) Financially distressed borrowers. FFB loans that are
eligible to be prepaid by utilizing the financially distressed borrowers'
reserve are advances with long-term maturity dates, and which in the
opinion of the Administrator, if prepaid, would result in an economic
savings to the financially distressed borrower.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35426, Aug. 30, 1990.
Redesignated at 55 FR 49250, Nov. 27, 1990]

§ 1786.29   Prepayment authority, program
allocations, categories of prepayment applications and financially
distressed borrowers' reserve.

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(a) Prepayment Authority. So long as the aggregate amount of
prepayments made after December 22, 1987, including prepayments made
pursuant to §1786.28(d) and §1786.28(e), under section 306(A) of the RE
Act, does not exceed $2.5 billion, the approval of the Secretary of the
Treasury is not required in order to make a prepayment pursuant to this
subpart (such amount of prepayments is hereinafter called prepayment
authority).

(b) Program Allocations. In accordance with the provisions of
section 637 of the 1989 Appropriations Act, $350 million of prepayment
authority is allocated to RUS-financed electric systems and $150 million
of prepayment authority is allocated to RUS-financed telephone utilities.
The amounts of prepayment authority allocated to electric program
borrowers and telephone program borrowers shall not be transferred between
programs. Borrowers may not sell, assign, or otherwise transfer prepayment
authority to another borrower.

(c) Categories of Prepayment Applications. Applications received
by RUS from borrowers desiring to prepay pursuant to this subpart will be
separated into the following two application categories:

(1) Electric Program Applications. Electric program applications
are applications to make a prepayment pursuant to this subpart from
RUS-financed electric utilities, that qualify in accordance with
§1786.28(a) hereof and which are received by RUS during the application
period. Electric program applications will be further subdivided and
classified as being either (i) a financially distressed borrower's
application, or (ii) a standard electric program application. Applications
received from borrowers determined by the Administrator not to be a
financially distressed borrower will be classified and processed as a
standard electric program application;

(2) Telephone Program Applications. Telephone program
applications are applications to make a prepayment pursuant to this
subpart from RUS-financed telephone utilities that qualify in accordance
with §1786.28(a) hereof and which are received by RUS during the
application period;

(d) Financially distressed borrowers' reserve. The $350 million
of prepayment authority allocated for RUS-financed electric utilities, is
initially set aside into a financially distressed borrowers' reserve. This
reserve of prepayment authority will be available for prepayments pursuant
to this subpart by financially distressed borrowers who apply to make such
a prepayment during the application period. In the event that a portion of
financially distressed borrowers' reserve remains unsubscribed at the end
of the initial application period, the unallocated portion of the
financially distressed borrowers' reserve will be allocated to other
electric borrowers having submitted applications during an application
period to be announced by RUS. Such prepayment applications shall be
classified as standard electric program applications.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35427, Aug. 30, 1990.
Redesignated at 55 FR 49250, Nov. 27, 1990]

§ 1786.30   Processing procedure.

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(a) Priority of Processing. The determination of the order or
method in which applications or portions of applications will be processed
by RUS pursuant to this subpart rests solely within the discretion of the
Administrator. RUS expects that a number of prepayment applications will
be processed simultaneously. In the event that it becomes necessary to
establish priorities of processing, prepayment applications will be
processed without regard to the date received, generally in the following
order of priority:

(1) Applications from telephone borrowers;

(2) Applications from financially distressed borrowers;

(3) Applications from all other borrowers. When assigning priority to
such applications, RUS will consider a number of factors, including
without limitation, (i) the number of prepayment applications being
processed by the area office; (ii) the novelty or complexity of the
proposed transaction; (iii) the method of prepayment; and (iv) the
availability of resources. In the event that RUS receives during the
initial application period, prepayment applications from such borrowers in
an amount less than remaining prepayment authority for each respective
program, RUS will establish a new application period and publish a notice
to that effect in theFederal Register.

(b) Pro-rated Applications. Standard electric program
applications, and telephone program applications will be prorated within
their respective application categories to permit partial prepayments in
the event that the aggregate amount of prepayment applications received
during the application period exceeds the amount of prepayment authority
allocated to that application category. In such circumstances, the amount
of each borrower's permitted prepayment shall be determined within each
respective application category, as follows:

(1) The principal amount of FFB advances under each individual
application, which, if prepaid pursuant to this subpart, would result in
an economic savings to the borrower, shall be divided by the aggregate
principal amount of FFB advances, under all of the applications, which, if
prepaid pursuant to this subpart, would result in an economic savings to
the borrowers, in order to determine a percentage (hereinafter called a
pro-rated percentage) for each borrower;

(2) Each borrower's share of the prepayment authority for its
application category shall be equal to the product of (i) the prepayment
authority times (ii) the respective pro-rated percentage, and may be used
to prepay a portion of any of the borrower's FFB loans listed pursuant to
§1786.31(a)(2);

(3) If any approved prepayment transaction fails to be settled within
180 days of the date the borrower is notified by RUS of its prepayment
allocation, RUS may rescind its approval. The unused prepayment authority
represented by such a failed transaction is subject to being included in
any subsequent notice of a new application period under this subpart;
and

(4) In the event that applications from financially distressed
borrowers exceed the amount prepayment authority remaining in the
financially distressed borrowers' reserve, the Administrator at his
discretion shall select one or more of such applications and allocate the
reserve. In making such a selection and allocation, the Administrator may
consider various factors, including without limitation, (i) the dollar
amount of savings to be realized by the proposed prepayment; (ii) the
interest rates on the FFB loans proposed to be prepaid; (iii) the
magnitude of the default or potential default; and (iv) whether the
borrower has previously completed a prepayment under section 306(A).

(c) Notification of Borrowers' Allocations. Promptly after
allocating the prepayment authority to borrowers and completing any
proration calculations that may be necessary, RUS will return to each
borrower submitting a prepayment application pursuant to this subpart, a
copy of their Notice of Intent to Prepay the Federal Financing Bank
specifying the amount of the borrower's prepayment allocation.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 49250, Nov. 27,
1990]

§ 1786.31   Application procedure.

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Applications to make a prepayment pursuant to this subpart shall be
submitted to RUS on such forms as RUS may prescribe in the following
manner:

(a) Application. Each borrower desiring to make a prepayment
pursuant to this subpart shall submit an application to RUS. No
application from a borrower will be accepted by RUS prior to the
commencement of the application period. An application shall not be deemed
submitted to RUS until it is received by RUS, and the “Date Received” has
been inscribed on the Notice of Intent to Prepay the Federal Financing
Bank by an authorized official of RUS. Incomplete applications may be
returned to the borrower at the discretion of RUS and thereafter must be
resubmitted in order to be processed. To be considered complete, the
application should include the following:

(1) “Notice of Intent to Prepay the Federal Financing Bank” in the form
specified in §1786.33 hereof;

(2) A listing of each FFB loan advance to be prepaid by loan
designation, RUS note number, RUS account number, advance date, maturity
date, original amount, outstanding balance, and interest rate;

(3) Evidence that the borrower meets the qualification provisions of
§1786.28(a) of these regulations;

(4) The certification set forth in part A of the Notice of Intent to
Prepay the Federal Financing Bank executed by the chief executive officer
of the borrower;

(5) In the event that a borrower submits a prepayment application which
proposes to utilize a portion of the financially distressed borrowers'
reserve, a certification signed by the chief executive officer of the
system to the effect that the borrower is either (i) in default or near
default on interest or principal payments due on loans made or guaranteed
under the RE Act, and is making a good faith effort to increase rates and
reduce costs to avoid or mitigate default; or (ii) participating in a work
out or debt restructuring plan with RUS, either as the borrower being
restructured or as a borrower providing assistance as part of the work out
or restructuring and stating why the borrower is in default or near
default.

(b) Election of Method of Prepayment. Prior to requesting RUS to
schedule a settlement date, the borrower shall (1) elect whether it will
use a private loan, internally generated funds, or a combination of a
private loan and internally generated funds to make the prepayment, by
completing part C of its Notice of Intent to Prepay the Federal Financing
Bank; (2) specify in part C of the Notice of Intent to prepay the Federal
Financing Bank a date after which a prepayment closing may be scheduled;
(3) if appropriate, execute the certification set forth in part C of the
Notice of Intent to Prepay the Federal Financing Bank; and (4) return a
completed copy of the Notice of Intent to Prepay the Federal Financing
Bank to the RUS area office.

(c) Final Documentation. All documentation in connection with a
proposed prepayment made pursuant to this subpart shall have been
submitted to RUS in final form, no later than 5 business days prior to the
settlement date agreed to by the borrower and RUS. To be considered
complete, the final documentation shall include the following
material:

(1) A completed copy of the Notice of Intent to Prepay the Federal
Financing Bank;

(2) In the event that a borrower proposes to utilize a private loan in
connection with a prepayment or a portion of a prepayment,

(i) Evidence, in form and substance satisfactory to RUS, that the
borrower has an irrevocable commitment from the lender to close the
private loan on the settlement date at an interest rate that meets the
requirements of §1786.28(c)(1);

(ii) Evidence that the lender meets the qualification provisions of
§1786.28(b);

(iii) Evidence that the private loan meets the qualification provisions
of §1786.28(c); and

(iv) The final documentation for the private loan;

(3) Estimate of fees, and expenses, including any taxes, in connection
with the prepayment transaction;

(4) A certified copy of a resolution of the board of directors of the
borrower approving the certification cited above and requesting RUS
approval of the prepayment.

(5) In the case of financially distressed borrowers, evidence in form
and substance satisfactory to the Administrator that the benefits of
prepayment will not be used to reduce rates and that any Federal or state
regulatory body having jurisdiction over the borrower's rates has
acknowledged its awareness of this requirement;

(6) In the event that borrower is unable to deliver final documentation
or the evidence specified in accordance with, §1786.31(c), RUS may
reschedule the settlement date at its discretion.
(Approved by the
Office of Management and Budget under control number 0572–0088)

§ 1786.32   Settlement procedure.

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(a) General. Settlements in connection with prepaying FFB loans
pursuant to this subpart shall be conducted in accordance with the
provisions of this section.

(b) Settlement date. The prepayment will be settled and if a
private loan is utilized, the guarantee will be delivered, on a settlement
date agreed upon by the borrower and RUS. Prior to scheduling a settlement
date for a borrower's prepayment pursuant to this subpart, RUS shall have
received the material specified in §1786.31(b).

(c) Place of settlement. All settlements will take place in
Washington, DC, at a location of the borrower's choosing; provided
however, if more than one settlement is proposed for the same settlement
date, RUS reserves the right to coordinate the date and location of the
settlements with borrowers involved.

(d) Repayment of FFB. Prior to 1:00 p.m. prevailing local time
in New York, New York, on the settlement date, the borrower shall wire
immediately available funds to RUS through the Department of the Treasury
account at the Federal Reserve Bank of New York or shall provide for
payment to RUS in another manner acceptable to RUS and FFB, in an amount
sufficient to pay the outstanding principal of the FFB loan being prepaid
plus accrued interest from the last payment date to and including the
settlement date.

(e) Documentation. The borrower shall deliver, or cause to be
delivered to RUS and FFB, not less than 3 business days prior to the
settlement date, written notice of the settlement date and a complete
listing of each FFB loan advance to be prepaid or partially prepaid, in
the format required by §1786.31(a)(2). In the event that a private loan is
used in connection with the prepayment, the following executed documents,
opinions and material shall be delivered at the settlement:

(1) The guaranteed note evidencing the private loan.

(2) The guarantee.

(3) The loan guarantee agreement.

(4) Copy of the private loan agreement between the lender and the
borrower.

(5) Evidence that the borrower has received all approvals which are
required under Federal or state law, loan agreements, security agreements,
existing financing arrangements, or any other agreement to which the
borrower is a party.

(6) An amendment in recordable form revising the description of the
obligations secured by the mortgage including the obligation of the
borrower to reimburse RUS for any amounts that RUS may pay under the
guarantee.

(7) An approving opinion of the borrower's legal counsel to the effect
that the guaranteed note evidencing the private loan is a valid and
legally binding obligation of the borrower which is secured under the
mortgage, and the priority of the mortgage, as amended pursuant to
paragraph (e)(6) of this section, remains undisturbed.

(8) An approving opinion of the lender's legal counsel to the effect
that the loan guarantee agreement is a valid and legally binding
obligation of the lender.

(9) Such other opinions of counsel as may be required by the
Administrator.

(10) Copies of any other documentation required by the lender.

(11) Copies of any other documentation required by RUS to ensure that
the obligations of the borrower to reimburse RUS for any amounts that RUS
pays under the guarantee or may advance in connection with the private
loan are adequately secured under the mortgage.
(Approved by the Office
of Management and Budget under control number 0572–0088)

§ 1786.33   Forms.

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Guarantees and loan guarantee agreements executed by RUS pursuant to
this subpart will be on forms prescribed by RUS. Such forms will include,
without limitation, additional details on servicing, procedures for
notifying RUS of a default, the manner for requesting payment on a
guarantee. The Notice of Intent to Prepay the Federal Financing Bank shall
be substantially in the form specified by RUS. RUS may also prescribe
standard forms of certifications to be used in connection with materials
required to be furnished pursuant to §1786.31 of this subpart.

§ 1786.34   Access to records of lenders,
servicers, and trustees.

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The lender, the servicer, or the trustee will permit representatives of
RUS (or other agencies of the U.S. Department of Agriculture authorized by
that Department) to inspect and make copies of any of their records
pertaining to RUS guaranteed loans. Such inspection and copying may be
made during regular office hours of the respective party or any other time
the party and RUS find convenient.

§ 1786.35   Loss, theft, destruction, mutilation,
or defacement of RUS guarantee.

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(a) Authorized representative. Except where the evidence of debt
was or is a bearer instrument, the RUS Administrator is authorized on
behalf of RUS to issue a replacement guarantee(s) for one(s) which may
have been lost, stolen, destroyed, mutilated, or defaced. Such
replacement(s) shall be issued only to the lender or holder and only upon
receipt of an acceptable certificate of loss and an indemnity bond.

(b) Requirements. When a guarantee(s) is lost, stolen,
destroyed, mutilated, or defaced while in the custody of the lender, or
holder, the lender will coordinate the activities of the party who seeks
the replacement documents and will submit the required documents to RUS
for processing. The requirements for replacement are as follows:

(1) A certificate of loss properly notarized which includes:

(i) Legal name and present address of the owner, requesting the
replacement forms;

(ii) Legal name and address of lender of record;

(iii) Capacity of person certifying;

(iv) Full identification of the guarantee, including the name of the
borrower, date of the guarantee, face amount of the evidence of debt
purchased, date of evidence of debt and present balance of the loan. Any
existing parts of the documents to be replaced should be attached to the
certificate;

(v) A full statement of circumstances of the loss, theft, or
destruction of the guarantee; and

(vi) The lender or holder, shall present evidence demonstrating current
ownership of the guarantee and note. If the present holder is not the same
as the original lender, a copy of the endorsement of each successive
holder in the chain of transfer from the initial private lender to present
holder shall be included. If copies of the endorsement cannot be obtained,
best available records of transfer shall be presented to RUS (e.g., order
confirmation, cancelled checks, etc).

(2) An indemnity bond acceptable to RUS shall accompany the request for
replacement except when the holder is the United States, a Federal Reserve
Bank, a Federal Government Corporation, a state or territory, or the
District of Columbia. The bond may be with or without surety. The bond
shall be with surety except when the outstanding principal balance and
accrued interest due the present holder is less than $1,000,000 verified
by the lender in writing in a letter of certification of balance due. The
surety shall be a qualified surety company holding a certificate of
authority from the Secretary of the Treasury and listed in Treasury
Department Circular 580.

(3) All indemnity bonds shall be issued and/or payable to the United
States of America acting through the Administrator of the Rural Utilities
Service. The bond shall be in an amount not less than the unpaid principal
and interest. The bond shall save RUS harmless against any claim or demand
which might arise or against any damage, loss, costs, or expenses which
might be sustained or incurred by reasons of the loss or replacement of
the instruments.

§ 1786.36   Other prepayments.

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Nothing contained in this subpart shall prohibit a borrower from making
prepayments of FFB loans in accordance with the terms thereof.

§ 1786.37   Application of regulation to previous
prepayments.

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Nothing contained in this subpart shall affect the validity of
prepayments made or guarantees issued pursuant to previous regulations.
Those borrowers, however, that completed a prepayment pursuant to section
306(A) of the RE Act and closed loans prior to February 27, 1988, may, in
their discretion request RUS approval and if required by prior regulations
the concurrence of the Secretary of the Treasury, of any amendments
necessary to make the terms and conditions of such loans consistent with,
or to consolidate such loans with, loans guaranteed under these
regulations.

§ 1786.38   Judicial review.

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This subpart is intended to set forth RUS policies and procedures for
the orderly administration of the provisions of section 306(A) of the RE
Act, section 633 of the continuing resolution, and section 637 of the 1989
Appropriations Act and is not intended to create any right or benefit,
substantive or procedural, enforceable at law by a party against the
United States, its agencies, its officers or any person.

§§ 1786.39-1786.49   [Reserved]

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Subpart C—Special Discounted Prepayments on RUS Direct/Insured
Loans

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Authority:   7 U.S.C. 901–950b; Title I,
Subtitle B, Pub. L. 99–509; Pub. L. 103–354, 108 Stat. 3178 (7 U.S.C. 6941
et seq.).

Source:   51 FR 46999, Dec. 29, 1986,
unless otherwise noted. Redesignated at 55 FR 49250, Nov. 27,
1990.

§ 1786.50   Purpose.

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This subpart sets forth the policies and procedures of RUS whereby
electric and telephone borrowers may prepay outstanding RUS Notes at the
Discounted Present Value of the RUS Notes with private financing.

§ 1786.51   Definitions.

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As used in this subpart:

Act means the Rural Electrification Act of 1936, as amended (7
U.S.C. 901 et seq.).

Administrator means the Administrator of RUS.

Discounted Present Value shall have the meaning specified in
§1786.53

Fund means the Rural Electrification and Telephone Revolving
Fund established pursuant to the Act.

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.

RUS means the Rural Utilities Service, an agency of the Unites
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 Loan Agreement means the agreement between the borrower and
RUS providing for loans pursuant to the Act.

RUS Notes means those notes, bonds or other obligations
evidencing indebtedness created by loans made pursuant to Titles I, II or
III of the Act (7 U.S.C. 901–940).

[51 FR 46999, Dec. 29, 1986. Redesignated at 55 FR 49250, Nov. 27,
1990, as amended at 59 FR 66441, Dec. 27, 1994]

§ 1786.52   Prepayment.

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Through September 30, 1987, the Administrator may, pursuant to this
subpart, permit eligible electric and telephone borrowers to prepay all
outstanding RUS Notes issued or assumed by such borrowers and held in the
Fund, upon paying the lesser of the outstanding balance or the Discounted
Present Value.

§ 1786.53   Discounted present value.

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The Discounted Present Value shall be calculated five business days
before prepayment is made by summing the present values of all remaining
payments by using the following formula:

Where:

Pk=Total payment including interest, due on the
kthpayment date following the prepayment date.

n=Total number of remaining payments dates.

I=The discount rate, in decimals, which shall be the average rate on
utility bonds bearing a rating of “Aa” as set forth in that issue of
Moody's Public Utility News Reports most recently published prior to the
date on which Discounted Present Value is calculated.

D11=Number of days in the ithpayment period that
are in a non-leap year (365 day year).

D2i=Number of days in the ithpayment period that
are in a leap year (366 day year).

§ 1786.54   Eligibility criteria.

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To be eligible to prepay RUS Notes at the Discounted Present Value a
borrower must comply with the following criteria:

(a) The borrower must be current on all payments due on its outstanding
RUS Notes and all other payment obligations owed to RUS and the Rural
Telephone Bank.

(b) The borrower must agree to prepay all of its outstanding RUS
Notes.

(c) The borrower must identify the source of private financing that
will be used to refinance its outstanding RUS Notes, which financing may
not include obligations the income of which is exempt from taxation under
the Internal Revenue Code of 1986.

(d) The borrower must have expended all funds advanced on account of
the RUS Notes for the purposes for which such funds were advanced.

(e) The borrower must agree to a rescission of the unadvanced balance
of the RUS Notes.

(f) The borrower must agree that the borrower, its successors or
assigns, shall pay to the Government, as a condition of receiving
additional loans or loan guarantees pursuant to Titles I, II and III of
the Act, an amount equal to the aggregate of the difference with respect
to each of the RUS Notes between the amount outstanding on the RUS Note
and the Discounted Present Value of the RUS Note upon prepayment with
interest accruing quarterly; the interest rates shall be the rates
provided in the respective RUS Notes.

(g) If the borrower is a party to a wholesale power contract with a
power supplier financed pursuant to the Act, the borrower must provide the
Administrator with such assurances as the Administrator may request that
it will meet its obligations to the power supplier.

§ 1786.55   Application procedure.

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Any borrower seeking to prepay its RUS Notes under this subpart should
apply to the appropriate RUS Area Director by submitting:

(a) A board resolution that:

(1) Requests approval of the prepayment of the borrower's outstanding
RUS Notes, and

(2) States the intent of the borrower to comply with all eligibility
criteria set forth in §1786.54 of this subpart.

(b) A list of all RUS Notes together with the outstanding amount on
such notes.

(c) Such additional information as the Administrator shall
request.

§ 1786.56   Approval of applications.

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The applications will ordinarily be reviewed and, if satisfactory,
approved, and closing schedule based on the order in which executed
prepayment agreements are received. The Administrator may limit the number
of applications approved and closings scheduled from time to time taking
into account, among other matters, the financial interests and
administrative considerations of the Government.

§ 1786.57   Prepayment agreement.

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Upon approving an application for prepayment under this subpart, the
Administrator shall notify the borrower and deliver to the borrower for
its execution a prepayment agreement which shall set forth and
provide:

(a) The RUS Notes to be prepaid and when the Discounted Present Value
will be calculated.

(b) The place and conditions for closing.

(c) Agreement that the unadvanced balance of RUS Notes shall be
rescinded.

(d) Agreement that the borrower, or its successors or assigns, shall
pay to the Government, as a condition of receiving additional loans or
loan guarantees pursuant to Titles I, II and III of the Act, an amount
equal to the aggregate of the difference with respect to each of the RUS
Notes between the amount outstanding on the RUS Note and the Discounted
Present Value of the RUS Note upon prepayment with interest accruing
quarterly; the interest rates shall be the rates provided in the
respective RUS Notes.

(e) Assurances that the borrower will meet its obligations to any power
supplier financed pursuant to the Act.

(f) Such other terms and conditions as the Administrator deems
appropriate.

§ 1786.58   Security.

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If, after prepayment of RUS Notes, the Government should continue to
hold liens on the borrower's property that secure loans made or guaranteed
pursuant to the Act, the Administrator of RUS or the Governor of the Rural
Telephone Bank, as the case may be, will consider request for the
accommodation of such liens for the purpose of providing security for
loans the proceeds of which were used to prepay RUS Notes. Such lien
accommodations shall be limited in amount to the Discounted Present Value
of the RUS Notes plus such costs, as the Administrator shall determine to
be reasonable, incurred by the borrower in obtaining such loans.

§ 1786.59   Loan fund audit.

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Within 6 months of closing RUS shall have the right to audit
transactions involving the RUS construction fund established and
maintained by the borrower pursuant to the terms of the RUS Loan Agreement
and to inspect all books, records, accounts and other documents and papers
of the borrower. Should RUS determine that the borrower has made
disbursements of funds advanced pursuant to RUS Notes which do not comply
with the requirements of the RUS Loan Agreement, the borrower shall be
required to pay to the Government an amount equal to the difference
between the amount which the borrower prepaid on such RUS Notes evidencing
RUS loan funds which were improperly disbursed and the amount which the
borrower would otherwise have been required to return to the Government as
a result of noncompliance if the borrower had not prepaid such RUS Notes.
(See 7 CFR part 1721)

§ 1786.60   Closing.

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(a) The borrower shall be responsible for obtaining all approvals
necessary to consummate the transaction as required by the prepayment
agreement including such approvals as may be required by regulatory bodies
and other lenders.

(b) The RUS Notes shall be prepaid at a closing to be held in
accordance with the prepayment agreement; Provided, however, That
no closing may be scheduled for after September 30, 1987. At closing, a
borrower shall prepay the RUS Notes by paying to the Government an amount
equal to the Discounted Present Value of the RUS Notes. The closing shall
otherwise be conducted as prescribed in the prepayment agreement.

§ 1786.61   Other prepayments.

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RUS loan documentation generally permits borrowers to prepay RUS Notes
by paying the outstanding balance due thereon. Nothing in this subpart
shall prohibit any borrower from prepaying its outstanding RUS Notes in
accordance with the terms thereof. The provisions of this subpart shall
not be applicable to such prepayment.

§§ 1786.62-1786.74   [Reserved]

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Subpart D [Reserved]

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Subpart E—Discounted Prepayments on RUS Notes in the Event of a Merger
of Certain RUS Electric Borrowers

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Source:   56 FR 37268, Aug. 6, 1991,
unless otherwise noted.

§ 1786.95   Purpose.

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This subpart sets forth the policies and procedures of RUS whereby
certain electric borrowers may prepay outstanding RUS Notes at the
Discounted Present Value of the RUS Notes with private financing.

§ 1786.96   Definitions.

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As used in this subpart:

Act means the Rural Electrification Act of 1936, as amended (7
U.S.C. 901 et seq.).

Administrator means the Administrator of RUS.

Consolidation means:

(1) The combination, pursuant to state law, of two or more borrower or
nonborrower organizations into a new successor organization that takes
over the assets and assumes the liabilities of those organizations; or

(2) Any other transaction including an acquisition which has
substantially the same effect.

Discounted Present Value shall have the meaning specified in
§1786.98.

Fund means the Rural Electrification and Telephone Revolving
Fund pursuant to the Act.

Merger means:

(1) The combination, pursuant to state law, of two or more borrower or
nonborrower organizations into an existing survivor organization that
takes over the assets and assumes the liabilities of the merged
organizations; or

(2) Any other transaction including an acquisition which has
substantially the same effect.

REA 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.

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 Loan Agreement means the agreement between the borrower and
RUS providing for loans pursuant to the Act.

RUS Notes means those notes, bonds or other obligations
evidencing indebtedness created by loans made or guaranteed by RUS
pursuant to titles I and III of the Act (7 U.S.C. 901–940).

[56 FR 37268, Aug. 6, 1991, as amended at 59 FR 66440, Dec. 27,
1994]

§ 1786.97   Prepayment.

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There were 29 former RUS electric borrowers that prepaid their direct
or insured loans under section 306B(a) of the Act prior to October 1,
1987. (See subpart C of this part.) These borrowers are listed in appendix
A to subpart E of this part. Any RUS electric borrower which is the result
of a merger or consolidation involving any of these 29 former borrowers
and a borrower with outstanding Notes may, after meeting all requirements
of this subpart, prepay all outstanding RUS Notes issued or assumed by the
borrower upon paying the lesser of the outstanding balance or the
Discounted Present Value. Such prepayment must be made not later than one
year after the effective date of the merger or consolidation.

§ 1786.98   Discounted present value.

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(a) The Discounted Present Value shall be calculated by RUS before
prepayment is made by summing the present values of all remaining payments
on all outstanding notes according to the following formula to compute the
discounted present value of each note and adjusting as here and after
provided for tax exempt financing.

Where:

Pk=Total payment, including interest, due on the
kthpayment date following the prepayment date. n=Total number
of remaining payment dates. I=The discount rate applied to each
transaction will be ascertained by using data specified in the “Federal
Reserve Statistical Release” which is published each Monday. (See appendix
B to subpart E of this part.) The specific discount rate will be the
discount rate(s) specified in the “Treasury Constant Maturities” section
of this publication eight working days prior to the closing. In applying
the discount rate, the 1-year Treasury rate will be used for all notes
with a remaining term of less than 2 years; the 2-year Treasury rate for
notes with maturities between 2 and 3 years; the 3-year Treasury rate for
all notes with maturities between 3 and 5 years; the 5-year Treasury rate
for all notes with maturities between 5 and 7 years; the 7-year Treasury
rate for all notes with maturities between 7 and 10 years; the 10-year
Treasury rate for all notes with maturities between 10 and 30 years; and
the 30-year Treasury rate for all notes with maturities longer than 30
years.

D1i=Number of days in the ithpayment period that
are in a non-leap year (365 day year).

D2i=Number of days in the ithpayment period that
are in a leap year (366 day year).

(b) Notwithstanding paragraph (a) of this section, in the event that
the borrower shall elect to prepay using tax exempt financing, the
calculation of the Discounted Present Value shall be adjusted to make the
discount the equivalent of fully taxable financing.

§ 1786.99   Eligibility criteria.

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To be eligible to prepay RUS Notes at the Discounted Present Value, a
borrower must comply with the following criteria:

(a) The borrower must be current on all payments due on its outstanding
RUS Notes and all other payment obligations owed to RUS;

(b) The borrower must agree to prepay all of its outstanding RUS
Notes;

(c) The borrower must identify the source of financing that will be
used directly or indirectly to refinance its outstanding RUS Notes. The
borrower must certify in writing whether such financing will be tax exempt
and, if so, shall furnish all information on the financing as RUS may
request to enable RUS to adjust the discount to the equivalent to fully
taxable financing;

(d) The borrower must have expended all funds advanced on account of
the RUS Notes for the purposes for which such funds were advanced or
repaid RUS for all unexpended funds;

(e) The borrower must agree to a rescission of the unadvanced balance
of any RUS Notes outstanding as of the date of its application for
prepayment;

(f) The borrower must agree that the borrower, its successors and
assigns, shall pay to the Government, as a condition of receiving
additional loans or loan guarantees pursuant to titles I and III of the
Act, an amount equal to the aggregate of the difference with respect to
each of the RUS Notes between the amount outstanding on the RUS Note and
the Discounted Present Value of the RUS Note upon prepayment with interest
accruing quarterly; the interest rates shall be the rates provided in the
respective Notes; and

(g) If the borrower is a party to a wholesale power contract with a
power supplier financed pursuant to the Act, the borrower must provide the
Administrator with such assurances as the Administrator may request that
it will meet its obligations to the power supplier. The borrower must also
specifically agree to the following limitation: The borrower agrees that,
for so long as the Wholesale Power Contract shall be in effect between the
borrower and the power supplier, the borrower will not, without the
approval in writing of the power supplier and the Administrator, take or
suffer to be taken any steps for reorganization or to consolidate with or
merge into any corporation or any other public power district, or to sell,
lease or transfer (or make any agreement therefor) all or a substantial
portion of its assets, whether now owned or hereafter acquired.
Notwithstanding the foregoing, the borrower may take or suffer to be taken
any steps for reorganization or to consolidate with or merge into any
corporation or any other public power district, or to sell, lease or
transfer (or make any agreement therefor) all or a substantial portion of
its assets, whether now owned or hereafter acquired, so long as the
borrower shall pay such portion of the outstanding indebtedness evidenced
by the power supplier's Notes at the time outstanding as shall be
determined by the power supplier with the prior written consent of the
Administrator and shall otherwise comply with such reasonable terms and
conditions as the Administrator and the Power Supplier shall
require.

§ 1786.100   Application procedure.

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Any borrower seeking to prepay its RUS Notes under this Subpart should
apply to the appropriate RUS Area Director not less than 60 days prior to
one year after the effective date of the merger or consolidation by
submitting:

(a) A board resolution that:

(1) Requests approval of the prepayment of the borrower's outstanding
RUS Notes;

(2) States the intent of the borrower to comply with all eligibility
criteria set forth in §1786.99 of this subpart; and

(3) Identifies the source of financing.

(b) A list of all RUS Notes together with the outstanding amount on
such notes.

(c) An opinion of counsel as to the effective date of the merger or
consolidation.

(d) Such additional information as the Administrator will
request.

§ 1786.101   Approval of application.

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The applications will be reviewed and, if satisfactory, approved.
Closing will be scheduled upon approval.

§ 1786.102   Prepayment agreement.

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Upon approving an application for prepayment under this subpart, the
Administrator shall notify the borrower and deliver to the borrower for
its execution a prepayment agreement which shall set forth and
provide:

(a) The RUS Notes to be prepaid and when the Discounted Present Value
will be calculated.

(b) The place, date and conditions for closing.

(c) Agreement that the unadvanced balance of RUS Notes shall be
rescinded.

(d) Agreement that the borrower, or its successors or assigns, shall
pay to the Government, as a condition of receiving additional loans or
loan guarantees pursuant to titles I and III of the Act, an amount equal
to the aggregate of the difference with respect to each of the RUS Notes
between the amount outstanding on the RUS Note and the Discounted Present
Value of the prepaid RUS Note; with interest accruing quarterly. The
interest rates shall be the rates provided in the respective RUS
Notes.

(e) Assurances that the borrower will meet its obligations to any power
supplier financed pursuant to the Act.

(f) Such other terms and conditions as the Administrator deems
appropriate.

§ 1786.103   Security.

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If, after prepayment of RUS Notes, the Government should continue to
hold liens on the borrower's property, the Administrator of RUS will
consider a request for the accommodation of such liens for the purpose of
providing security for loans the proceeds of which were used to prepay RUS
Notes. Such lien accommodations shall be limited in amount to the
Discounted Present Value of the RUS Notes plus such costs, as the
Administrator shall determine to be reasonable, incurred by the borrower
in obtaining such loans.

§ 1786.104   Loan fund audit.

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RUS shall have the right to audit within 6 months of closing,
transactions involving the RUS construction fund established and
maintained by the borrower pursuant to the terms of the RUS Loan Agreement
and to inspect all books, records, accounts and other documents and papers
of the borrower. Should RUS determine that the borrower has made
disbursements of funds advanced pursuant to RUS Notes which do not comply
with the requirements of the RUS Loan Agreement, the borrower shall be
required to pay the Government an amount equal to the difference between
the amount which the borrower prepaid on such RUS Notes evidencing RUS
loans funds which were improperly disbursed and the amount which the
borrower would otherwise have been required to return to the Government as
a result of noncompliance if the borrower had not prepaid such RUS Notes.
(See 7 CFR part 1721, Post-Loan Policies and Procedures for Insured
Electric Loans.)

§ 1786.105   Closing.

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(a) The borrower shall be responsible for obtaining all approvals
necessary to consummate the transaction as required by the prepayment
agreement, including such approvals as may be required by regulatory
bodies and other lenders.

(b) The RUS Notes shall be prepaid at a closing to be held in
accordance with the prepayment agreement. RUS shall designate the date of
closing which in no event shall be later than one year after the effective
date of the merger or consolidation. At closing, in addition to paying all
current interest due on the date of prepayment, a borrower shall prepay
the RUS Notes by paying to the Government an amount equal to the lesser of
the outstanding balance or the Discounted Present Value of the RUS Notes.
The closing shall otherwise be conducted as prescribed in the prepayment
agreement.

§ 1786.106   Other prepayments.

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RUS loan documentation generally permits borrowers to prepay RUS Notes
by paying the outstanding balance due thereon. Nothing in this subpart
shall prohibit any borrower from prepaying its outstanding RUS Notes in
accordance with the terms thereof. The provisions of this subpart shall
not be applicable to such prepayment.

Appendix A to Subpart E of Part 1786—Listing of Eligible
Borrowers

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State

Borrower name and address

Colorado

Colorado-Ute Electric Assn., Inc.,
Montrose.

Florida

Lee County Electric Coop. Inc.,
North Fort Myers.

Indiana

Clark County Rural Elec. Memb.
Corp., Sellersburg.

Louisiana

Beauregard Electric Cooperative,
Inc., Deridder.

Missouri

Culvre River Electric Cooperative,
Inc., Troy.

Nebraska

Roosevelt Public Power District,
Mitchell.

Nebraska

Howard Greely Rural Public Power
Dist., St. Paul.

Nebraska

Cuming County Public Power
District, West Point.

Nebraska

York County Rural Public Power
District, York.

Nebraska

Elkhorn Rural Public Power
District, Battle Creek.

Nebraska

Southern Nebraska Rural P. P. D.,
Grand Island.

Nebraska

McCook Public Power District,
McCook.

Nebraska

Niobrara Valley Electric Memb.
Corp., O'Neill.

Nebraska

Cornhusker Public Power District,
Columbus.

Nebraska

Custer Public Power District,
Broken Bow.

Nebraska

Northwest Rural Public Power Dist.,
Hay Springs.

Nebraska

Southwest Public Power District,
Palisade.

Nebraska

Loup Valleys Rural Public Power
District, Ord.

Nebraska

South Central Public Power
District, Nelson.

Oklahoma

Peoples' Electric Cooperative,
Ada.

Texas

Deaf Smith County Electric Coop.
Inc., Hereford.

Texas

Pedernales Electric Coop. Inc.,
Johnson City.

Texas

Bandera Electric Cooperative, Inc.,
Bandera.

Texas

Guadalupe Valley Electric Coop.,
Inc., Gonzales.

Texas

Bluebonnet Electric Cooperative,
Inc., Giddings.

Texas

Cap Rock Electric Cooperative, Inc.
Stanton.

Texas

San Bernard Electric Cooperative,
Inc., Bellville.

Washington

Inland Power & Light Company,
Spokane.

Washington

Pub. Util. Dist. No. 1 Grays Harbor
Co., Aberdeen.

Appendix B to Subpart E of Part 1786—Federal Reserve Statistical
Release

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Federal Reserve Statistical Release

These data are released each Monday. The availability of the release
will be announced when the information is available, on (202)
452–3206.

H. 15 (519)

For immediate release February 4, 1991.

Selected Interest Rates

[Yields in percent per annum]

Instruments

1991 Jan. 28

1991 Jan. 29

1991 Jan. 30

1991 Jan. 31

1991 Feb. 1

This week

Last week

1991 Jan.

Federal Funds
(effective)1,2,3

7.61

7.16

6.96

8.18

6.30

7.46

6.88

6.91

Commercial
paper3,4,5

1-Month

6.88

6.96

6.95

6.99

6.73

6.90

6.83

7.12

3-Month

6.92

6.96

6.94

6.95

6.67

6.89

6.92

7.10

6-Month

6.87

6.91

6.88

6.88

6.58

6.82

6.86

7.02

Finance paper placed
directly3,4,6

1-Month

6.76

6.85

6.83

6.83

6.55

6.76

6.68

6.95

3-Month

6.75

6.83

6.83

6.76

6.46

6.73

6.77

6.92

6-Month

6.53

6.53

6.59

6.53

6.19

6.47

6.55

6.59

Bankers acceptances (top
rated)3,4,7

3-Month

6.80

6.82

6.77

6.68

6.30

6.67

6.76

6.96

6-Month

6.67

6.70

6.65

6.55

6.15

6.54

6.63

6.84

CDS (secondary
market)3,8

1-Month

6.78

6.85

6.87

6.82

6.52

6.77

6.77

7.10

3-Month

6.94

6.95

6.93

6.88

6.51

6.84

6.94

7.17

6-Month

6.95

6.98

6.95

6.88

6.51

6.85

6.97

7.17

Eurodollar deposits
(London)3,9

1-Month

6.81

6.88

6.88

6.88

6.88

6.86

6.81

7.13

3-Month

6.94

7.06

7.00

6.94

6.94

6.98

7.01

7.23

6-Month

7.00

7.00

7.00

6.94

6.94

6.98

7.04

7.23

Bank prime
loan2,3,10

9.50

9.50

9.50

9.50

9.50

9.50

9.50

9.52

Discount window
borrowing2,11

6.50

6.50

6.50

6.50

6.00

6.50

6.50

6.50

U.S. Government
securities

Treasury bills

Auction average3,4,12

3-Month

6.22

6.22

6.14

6.30

6-Month

6.28

6.28

6.21

6.34

1-Year

6.22

Auction average (investment)12

3-Month

6.41

6.41

6.32

6.49

6-Month

6.58

6.58

6.50

6.64

Secondary market3,4

3-Month

6.25

6.22

6.20

6.19

6.00

6.17

6.12

6.22

6-Month

6.26

6.26

6.24

6.20

5.97

6.19

6.20

6.28

1-Year

6.24

6.20

6.17

6.13

5.91

6.13

6.19

6.25

Treasury Constant
maturities13

1-Year

6.64

6.59

6.56

6.51

6.27

6.51

6.58

6.64

2-Year

7.12

7.10

7.07

7.05

6.83

7.03

7.09

7.13

3-Year

7.38

7.35

7.34

7.30

7.10

7.29

7.35

7.38

5-Year

7.67

7.64

7.64

7.62

7.45

7.60

7.66

7.70

7-Year

7.93

7.90

7.90

7.89

7.75

7.87

7.92

7.97

10-Year

8.06

8.05

8.05

8.03

7.91

8.02

8.04

8.09

30-Year

8.23

8.20

8.23

8.21

8.09

8.19

8.22

8.27

Composite

Over 10 years (long-term)14

8.29

8.26

8.29

8.27

8.15

8.25

8.28

8.33

Corporate bonds

Moody's Seasoned

AAA

9.03

9.01

9.00

8.99

8.96

9.00

9.05

9.04

BAA

10.43

10.37

10.35

10.33

10.24

10.34

10.44

10.45

A-Utility15

9.65

9.65

9.80

9.83

State and local
bonds16

7.00

7.00

7.06

7.08

Conventional
mortgages17

9.56

9.56

9.61

9.64

Footnotes:

1The daily effective federal funds rate is
a weighted average of rates on trades through N.Y. brokers.

2Weekly figures are averages of 7 calendar
days ending on Wednesday of the current week; monthly figures include each
calendar day in the month.

3Annualized using a 360-day year or bank
interest.

4Quoted on a discount basis.

5An average of offering rates on
commercial paper placed by several leading dealers for firms whose bond
rating is AA or the equivalent.

6An average of offering rates on paper
directly placed by finance companies.

7Representative closing yields for
acceptances of the highest rated money center banks.

8An average of dealer offering rates on
nationally traded certificates of deposit.

9Bid rates for Eurodollar deposits at 11
a.m. London time.

10One of several base rates used by banks
to price short-term business loans.

11Rate for the Federal Reserve Bank of New
York.

12Auction date for daily data; weekly and
monthly averages computed on an issue-date basis.

13Yields on actively traded issues
adjusted to constant maturities. Source: U.S. Treasury.

14Unweighted average of rates on all
outstanding bonds neither due nor callable in less than 10 years,
including one very low yielding “flower” bond.

15Estimate of the yield on a recently
offered, A-rated utility bond with a maturity of 30 years and call
protection of 5 years; Friday quotations.

16Bond buyer Index, general obligation, 20
years to maturity, mixed quality; Thursday quotations.

17Contract interest rates on commitments
for fixed-rate first mortgages. Source: FHLMC.

Note: Weekly and monthly figures are averages of
business days unless otherwise noted.

Description of the Treasury Constant Maturity Series

Yields on Treasury securities at “constant maturity” are interpolated
by the U.S. Treasury from the daily yield curve. This curve, which relates
the yield on a security to its time to maturity, is based on the closing
market bid yields on actively traded Treasury securities in the
over-the-counter market. These market yields are calculated from
composites of quotations reported by five leading U.S. Government
securities dealers to the Federal Reserve Bank of New York. The constant
maturity yield values are read from the yield curve at fixed maturities,
currently 1, 2, 3, 5, 7, 10, and 30 years. This method provides a yield
for a 10-year maturity, for example, even if no outstanding security has
exactly 10 years remaining to maturity.

Subpart F—Discounted Prepayments on RUS Electric Loans

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

Source:   59 FR 13620, Mar. 22, 1994,
unless otherwise noted.

§ 1786.150   Purpose.

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This subpart sets forth the policies and procedures of RUS whereby
borrowers may prepay, with private financing or internally generated
funds, outstanding RUS Notes evidencing electric loans at the Discounted
present value of the RUS Notes, pursuant to the provisions of section
306(B) of the RE Act as amended by Public Law 102–428, 106 Stat. 2183,
adopted October 21, 1992.

§ 1786.151   Definitions and rules of
construction.

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(a) Definitions. As used in this subpart:

Administrator means the Administrator of the Rural Utilities
Service (RUS).

Borrower means any organization which has an outstanding note(s)
evidencing electric loans made by RUS, or has previously prepaid such
notes under subparts C and E of this part.

Business day means any day on which both the RUS and the Federal
Reserve Bank of New York are open for business.

Construction Fund Account means the Cash—Construction
Fund—Trustee Account, maintained by the borrower pursuant to the terms of
the outstanding RUS Loan Contract.

Closing shall mean one of the several contemplated closings of
the prepayment of the Qualified Notes prescribed by the Prepayment
agreement.

Closing date shall mean any business day identified as such by
the Government in its preclosing notice delivered to the Company pursuant
to §1786.158.

Closing request shall mean a request by the borrower of the
Government to schedule a closing for certain Qualified Notes on the date
requested therein.

Direct loan means a loan made pursuant to section 4 of the RE
Act.

Discounted present value shall have the meaning set forth in
§1786.153.

Distribution borrower means a borrower that sells electric power
and energy at retail in rural areas.

Electric loan means a Direct loan or an Insured loan made for
the purpose of furnishing electric energy to persons in rural areas.

Final maturity means the final date on which all outstanding
principal and accrued interest on an electric loan is due and payable.

Government means the United States of America, acting through
the Administrator of the Rural Utilities Service.

Insured loan means a loan made pursuant to Section 305 of the RE
Act.

Lien accommodation means the sharing of the Government's (RUS's)
lien on property, usually all property, covered by the lien of the RUS
Mortgage.

Loan guarantee means a loan guarantee under Section 306 of the
RE Act.

Power supply borrower means a borrower that sells or intends to
sell electric power at wholesale to distribution or power supply borrowers
pursuant to RUS wholesale power contracts.

Preclosing notice shall mean a notice delivered by the
Government to the borrower in response to a closing request, identifying
the closing date, the Qualified Notes to be prepaid at such closing and
documents to be delivered by the borrower to the Government prior to the
closing date.

Prepayment agreement shall have the meaning set forth in
§1786.158.

Qualified Notes shall have the meaning set forth in
§1786.154.

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.

RUS Loan Contract means the agreement, as amended, supplemented,
or restated from time to time, between a borrower and RUS providing for
loans or loan guarantees pursuant to the RE Act.

RUS Mortgage means collectively those mortgages and security
agreements made by and among the borrower, the Government, and third
parties, if any, securing indebtedness evidencing electric loans or loan
guarantees made pursuant to the RE Act.

Rural development loans means loans or grants made pursuant to
Rural development programs.

Rural development programs means loan or grant programs under
the authority of the Administrator pursuant to sections 313, 501, and 502
of the RE Act.

Supplemental lender means a private lender whose loan to the
borrower is secured by the RUS mortgage.

Tax exempt financing means borrowing evidenced by bonds, notes
and other evidence of indebtedness the income of which is excluded from
gross income for the purposes of Chapter 1 of the Internal Revenue Code of
1986 (26 U.S.C. ch. 1).

(b) Rules of construction. Unless the context shall otherwise
indicate, the terms defined in paragraph (a) of this section include the
plural as well as the singular, and the singular as well as the
plural.

§ 1786.152   Prepayments of RUS loans.

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An electric loan made under the RE Act shall not be sold or prepaid at
a value that is less than the outstanding principal balance, except that,
on request of a borrower, an electric loan made under the RE Act, or a
portion of such a loan, that was advanced before May 1, 1992, or has been
advanced for not less than 2 years, shall be prepaid by the borrower at
the lesser of the outstanding principal balance of the loan or the
discounted present value thereof.

§ 1786.153   Discounted present value.

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(a) The discounted present value shall be calculated by summing the
present values of all remaining payments on all Qualified Notes to be
prepaid according to the following formula and adjusted as provided in
paragraph (b) of this section if tax exempt financing is used.

Where:

The Greek letter, Sigma (Σ) means the sum of the following terms.

The Greek letter, Pi (Π) means the product of the following terms.

Pk=Total payment, including interest due on the
Kthpayment date following the prepayment date.

n=Total number of remaining payment dates to final maturity.

D1i=Number of days in the ithpayment period that
are in a non-leap year (365-day year).

D2i=Number of days in the ithpayment period that
are in a leap year (366-day year).

I=The discount rate applied to each transaction ascertained by using
data specified in the “Federal Reserve Statistical Release” (H.15 (519)),
which is published each Monday. The availability of this Release will be
announced when the information is available by telephone on (202)
452–3206. See adjustment for tax exempt refinancing at paragraph (b) of
this section. The specific discount rate will be based on the discount
rate(s) specified in the “Treasury Constant Maturities” section of this
publication 8 business days prior to the closing and will be interpolated
from that information as follows:

Remaining final maturity
of RUS loan:

Treasury constant
maturities

At least

But less than

# years

# years

0

2

1-year.

2

3

2-year.

3

4

3-year.

4

5

(1)

5

6

5-year.

6

7

(2)

7

8

7-year.

8

9

(3)

9

10

(3)

10

11

10-year.

11

20

(4)

20

21

20-year.

21

30

(5)

30

36

30-year.

Notes:

1The arithmetic mean between the 3-year
and 5-year. Treasury Constant Maturities; i.e., if 3-year. rate is 3.00%
and the 5-year. rate is 4.00% then the rate used would be 3.5%.

2The arithmetic mean between the 5-year
and 7-year Treasury Constant Maturities computed as above.

3A straight line interpolated rate between
the 7-year rate and the 10-year rate. (See formula below)

4A straight line interpolated rate between
the 10-year note and the 20-year Bond rate. (See formula below)

5A straight line interpolated rate between
the 20-year bond and the 30-year bond using the following
formula:

Where:

I=The discount rate interpolated from the cost of money to the
Treasury.

A=The Treasury interest rate for the most recently published maturity
(in years) that is the shortest Treasury term (in years) which is greater
than the borrower's remaining term (in years) to final maturity; i.e., (if
the note to be prepaid has a final maturity of more than 10 years then
this rate is the 20-year Treasury rate)

B=The Treasury interest rate for the most recently published maturity
(in years) that is the longest Treasury term (in years) which is less than
the borrower's remaining term (in years) to final maturity; i.e., (if the
note to be prepaid has a final maturity of more than 10 years but less
than 20 years then this term is the 10-year Treasury rate)

C=The remaining number of full years to the final maturity of the
borrower's note. Drop all fractions of a year and use the remaining full
years.

E=The published Treasury term (in years) to maturity which is the
longest term to maturity for the published term that is less than the
remaining term (in years) to final maturity of the borrower's note; i.e.,
(if the note to be prepaid has remaining years to maturity between 11 and
20 years then this term would be 10 or if the note to be prepaid has
remaining years to maturity between 21 years and 30 years then this term
would be 20).

F=The published Treasury term (in years) to maturity which is the
shortest term to maturity for the published term that is greater than the
remaining term (in years) to maturity of the borrower's note; i.e., (if
the note to be prepaid has remaining years to maturity between 11 and 20
years then this term would be 20 or if the remaining years to maturity is
between 21 and 30 years then this term would be 30).

Note: The percentage terms used in the above formula will
be truncated to two decimal places. For the purpose of the terms A, B, E,
and F above the published Treasury rate and term shall mean the Treasury
Constant Maturities from the Federal Reserve Statistical Release for 7
years, 10 years, 20 years, and 30 years.

(b)(1) In the event that the borrower prepays a loan under paragraph
(a) of this section using, directly or indirectly, tax exempt financing,
the discount shall be adjusted to ensure that the borrower receives a
benefit that is no greater than the benefit the borrower would receive if
the borrower used financing that was not tax exempt. The borrower shall
certify in writing whether the financing will be tax exempt.

(2) The discount rate established in paragraph (a) of this section
shall be adjusted for a tax exempt financing by substituting for the “I”
term in the discount rate formula, a discount rate equal to the interest
rate(s) published pursuant to 7 CFR 1714.5, determination of interest
rates on municipal rate loans. This is the interest rate established for
the new RUS loan program which is based on municipal interest rates for
issues of comparable maturity. No interpolation or average will be used.
If a note is to be prepaid under this subpart and is subject to this tax
exempt adjustment, the discount rate will be determined from the published
table in theFederal Register.For example, if the note to be
discounted matures in the year 1999 then the discount rate will be the
interest rate for the year 1999. RUS will publish a schedule of interest
rates for municipal rate loans in theFederal Registerat the
beginning of each calendar quarter. The published rates in effect eight
business days prior to closing will be used for the discount rates. All
notes to be prepaid that have remaining years to maturity of more than 20
years will be discounted at the interest rate in effect for new RUS
municipal rate loans of comparable maturity at the time of closing.

§ 1786.154   Qualified Notes.

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An eligible borrower may prepay Qualified Notes under this subpart at
the discounted present value. A Qualified Note is a note evidencing an RUS
electric loan, all advances of which were made prior to May 1, 1992, or
not less than 2 years prior to the date of prepayment closing. See
§§1786.155(a)(3) and 1786.158 (h) and (j).

§ 1786.155   Eligible borrower.

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(a) To be eligible to prepay an electric loan under this subpart, the
borrower must be in compliance with the following:

(1) The borrower shall be current on all payment obligations on
outstanding loans made or guaranteed by RUS. For the purpose of
determining eligibility for prepayment, a default by a power supply
borrower from which a distribution borrower purchases wholesale power
shall not be considered a default by the distribution borrower;

(2) There shall exist no material defaults under the borrower's RUS
Loan Contract and Mortgage;

(3) The borrower shall have expended all funds advanced pursuant to the
RUS Loan Contract for the purposes for which such funds were advanced. A
borrower will not be eligible to prepay under this subpart if it has any
funds advanced pursuant to the RUS Loan Contract in its Construction Fund
Account; and

(4) The borrower shall be current on all obligations under any
wholesale power contract with an RUS financed power supply borrower.

(b) The eligibility of borrowers that have had any indebtedness
representing loans made or guaranteed by RUS restructured shall be
determined on a case by case basis considering the terms and conditions of
the restructuring agreement.

§ 1786.156   Application procedure.

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Any borrower seeking to prepay Qualified Notes under this subpart
should apply to the appropriate RUS Regional Director or the Director of
the Power Supply Division. The application shall provide the
following:

(a) Borrower's RUS designation;

(b) Borrower's name and address;

(c) A certified copy of a resolution of the board of directors of the
borrower that the borrower wishes to enter into a prepayment agreement
providing for the prepayment of all or a portion of its Qualified
Notes;

(d) Listing of each Qualified Note to be prepaid by loan designation,
RUS account number, advance date, maturity date, original amount, and
outstanding principal balance;

(e) Evidence that the borrower has the ability to obtain the financing
necessary to prepay its Qualified Notes listed in paragraph (d) of this
section and identification of the source of financing and the need if any
of obtaining a lien accommodation from RUS; and

(f) Such additional information as the Administrator may request.

§ 1786.157   Approval of applications.

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(a) Ordinarily, within 30 days of receipt, an application will be
reviewed and the borrower will be notified as to whether the application
has been approved. If the application has not been approved, the borrower
will be informed as to the reasons. If the application is approved the
borrower shall thereafter be provided with a prepayment agreement for
execution.

(b) The Administrator may limit the number of applications approved and
closings scheduled from time to time, taking into account, among other
matters, administrative considerations of the RUS.

§ 1786.158   Terms and conditions of prepayment
agreement.

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Upon receipt of a satisfactory application, RUS shall provide to the
borrower for its execution a prepayment agreement, in form and substance
satisfactory to RUS, which may include the following:

(a) Provide for the prepayment of one or more Qualified Notes from time
to time, but no more than two closings may be scheduled in any calendar
year unless a third closing is for the prepayment of all outstanding
electric loans of the borrower;

(b) Set forth procedures and forms through which the borrower will
notify the Government of each election it makes to prepay certain
Qualified Notes upon a requested closing date and the Government will
notify the borrower of the established closing date and prepayment amount
for the Qualified Notes for each closing;

(c) Reserve to the Administrator the right to reschedule closing dates
to meet administrative considerations;

(d) Set forth closing requirements identifying the location and manner
of payment, and all documentation and information to be delivered prior to
or at closing, including opinions of counsel and certificates from the
borrower;

(e) Provide for notice by either telephone or facsimile to be given by
RUS to the borrower not more than 8 nor less than 3 business days before a
scheduled closing date of the amount to be paid at closing which shall
include all accrued interest and the discounted present value of the
Qualified Notes to be prepaid;

(f) Provide for notice of the 120 month period during which the
borrower's eligibility for direct or insured loans will be restricted;

(g) Set forth representations and warranties;

(h) Require the borrower to prepay each Qualified Note specified in
full;

(i) Require the borrower to identify the source of the financing that
will be used directly or indirectly to refinance the Qualified Notes. If
the source is other than internally generated funds, the borrower must
certify in writing whether such financing will be tax exempt, and if tax
exempt financing will be used, furnish all information on the terms and
conditions of the financing as RUS may require;

(j) Require the borrower to rescind the unadvanced balance of all
outstanding electric loans as of the date of initial closing;

(k) Require the borrower, if it is a party to a wholesale power
contract with a power supply borrower, to provide the Administrator with
such assurances as the Administrator may require that it is in compliance
with and will continue to comply with its obligation to such power supply
borrower;

(l) Provide RUS, if the Administrator determines it necessary, with
security for all outstanding rural development loans and amendments to any
outstanding rural development loan agreements in form and substance, and
on terms and conditions, satisfactory to RUS;

(m) Prescribe remedies for violating the terms and conditions of the
prepayment agreement;

(n) Provide for termination by RUS of the right for the borrower to
prepay thereunder;

(o) Provide evidence that any approvals required from any supplemental
lender have been obtained; and

(p) Set forth such other terms and conditions as the Administrator
shall deem appropriate.

§ 1786.159   Initial closing.

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(a) Upon receipt of the prepayment agreement, the borrower may submit,
pursuant to the terms of the prepayment agreement, a closing request which
shall request a closing date no less than 30 business days from the date
of the request.

(b) The Government will respond to the borrower's closing request by
delivering a preclosing notice to the borrower not less than 10 business
days prior to the date which the Government, after reviewing the
borrower's closing request, selects as a closing date.

§ 1786.160   Subsequent closings.

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(a) Each subsequent prepayment after the initial closing shall be
facilitated with the submission of an additional closing request by the
borrower. Each closing request must request a closing date no less than 30
business days from the date of the request.

(b) The Government will respond to each subsequent closing request by
delivering a preclosing notice to the borrower not less than 10 business
days prior to the date which the Government, after reviewing the
borrower's closing request, selects as a closing date in each case.

§ 1786.161   Return of Qualified Notes and release
of lien.

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Upon payment to RUS at closing of the full amount specified in the
notice delivered by RUS to the borrower pursuant to the terms of the
prepayment agreement (see §1786.158(e)), RUS will deliver to the borrower
at closing those Qualified Notes which have been paid in full at such
closing, and upon payment and discharge of all outstanding RUS debt
obligations by the borrower, RUS will deliver to the borrower at the final
closing a release of lien prepared by the borrower pursuant to the terms
of the prepayment agreement.

§ 1786.162   Outstanding loan
documents.

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(a) Except as expressly provided in this subpart, the borrower shall
comply with all provisions of its RUS Loan Contract, its outstanding notes
issued to RUS, and the RUS Mortgage.

(b) Nothing in this subpart shall affect any rights of supplemental
lenders under the RUS Mortgage, or other creditors of the borrower.

(c) Nothing in this subpart shall prohibit a borrower from making
prepayments of any loans pursuant to the RE Act in accordance with the
terms of such loans.

§ 1786.163   Existing wholesale power
contracts.

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(a) If the borrower is a party to a wholesale power contract with a
power supply borrower financed pursuant to the RE Act, the Administrator
may require that the borrower and the power supply borrower enter into a
supplement to the outstanding wholesale power contract providing
substantially as follows:

Sample Contract Terms

So long as any of the notes evidencing secured loans of the power
supply borrower are outstanding, the borrower will not, without the
approval in writing of the power supply borrower and the Administrator,
take or suffer to be taken any steps for reorganization or dissolution, or
to consolidate with or merge into any corporation, or to sell, lease or
transfer (or make any agreement therefor) all or a substantial portion of
its assets, whether now owned or hereafter acquired. The power supply
borrower will not unreasonably withhold or condition its consent to any
such, reorganization, dissolution, consolidation, or merger, or to any
such sale, lease or transfer (or any agreement therefor) of assets. The
power supply borrower will not withhold or condition such consent except
in cases where to do otherwise would result in rate increases for the
other members of the power supply borrower or impair the ability of the
power supply borrower to repay its secured loans in accordance with their
terms, or adversely affect system performance in a material way.
Notwithstanding the foregoing, the borrower may take or suffer to be taken
any steps for reorganization or dissolution or to consolidate with or
merge into any corporation or to sell, lease or transfer (or make any
agreement therefor) all or a substantial portion of its assets, whether
now owned or hereafter acquired without the power supply borrower's
consent, so long as the borrower shall pay such portion of the outstanding
indebtedness on the power supply borrower's notes or other obligations as
shall be determined by the power supply borrower with the prior written
consent of the Administrator and shall otherwise comply with such
reasonable terms and conditions as the Administrator and power supply
borrower may require either: (1) To eliminate any adverse effect that such
action seems likely to have on the rates of the other members of the power
supply borrower, or

(2) To assure that the power supply borrower's ability to repay the
secured loans and other obligations of the power supply borrower in
accordance with their terms is not impaired.

The Administrator may require, among other things, that any payment
owed under (2) of the preceding sentence that represents a portion of the
power supply borrower's indebtedness on Notes shall be paid by the
borrower in the manner necessary to accomplish a defeasance of those
obligations in accordance with the loan documents relating thereto, or be
paid directly to the holders of the Notes for application by them as
prepayments in accordance with the provisions of such documents, or be
paid to the power supply borrower and held and invested in a manner
satisfactory to the Administrator.

[End of sample contract terms]

(b) The Administrator may exempt a borrower from the requirement to
enter into a supplement to its outstanding wholesale power contract if the
Administrator determines that such requirement is burdensome and
unnecessary in light of the provisions of the existing wholesale power
contract, other security arrangements of the power supply borrower, and
any other relevant facts and circumstances. Normally such exemption will
be granted only with the concurrence of the power supply borrower.

§ 1786.164   Loan fund audit.

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In the event that a borrower shall prepay all its outstanding electric
loans RUS shall have the right to audit within six (6) months of closing
transactions involving the RUS Construction Fund Account established and
maintained by the borrower pursuant to the terms of the RUS Loan Contract
and to inspect all books, records, accounts, and other documents and
papers of the borrower. Should RUS determine that the borrower has made
disbursements of funds advanced pursuant to the RUS Loan Contracts which
do not comply with the requirements thereof, the borrower shall be
required to pay the RUS an amount equal to the difference between the
amount which the borrower prepaid under this subpart with respect to such
advances, and the amount which the borrower would otherwise have been
required to return to the RUS as a result of noncompliance if the borrower
had not prepaid such advances, plus interest. (See 7 CFR part 1721,
Post-Loan Policies and Procedures for Insured Electric Loans.)

§ 1786.165   Reporting.

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Borrowers that no longer have any loans made or guaranteed by RUS and
are considering applying for other financial assistance pursuant to the RE
Act are encouraged to file the end-of-year operating report, RUS Form
7.

§ 1786.166   Approvals.

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The borrower shall be responsible for obtaining all approvals necessary
to consummate the transaction as required by the prepayment agreement,
including such approvals as may be required by regulatory bodies and other
lenders.

§ 1786.167   Restrictions to additional RUS
financing.

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(a) No borrower that prepays an electric loan at a discount as provided
under this subpart may apply for or receive direct or insured loans during
the 120 months from the most recent closing date, except at the discretion
of the Administrator. During the 120 month period the Administrator may
consider providing an insured loan if, among other matters, it is
necessary to assure repayment of, or protect the Government's security for
any outstanding loans or loan guarantees, or the borrower's system has
suffered severe physical plant related damage due to conditions beyond its
control and the borrower is unable to obtain financing at reasonable terms
to restore the system from non-RUS sources, including the Federal
Emergency Management Agency, and from private sources. Upon expiration of
the 120 months, such borrowers may apply for direct or insured loans in
the same manner as other borrowers provided that such borrowers may not
apply for direct or insured loans for facilities, construction of which
commenced prior to the expiration of the 120 months. Special provisions
for mergers involving a borrower that has prepaid pursuant to this subpart
are in 7 CFR 1717.158.

(b) Borrowers that prepay their direct or insured RUS loans under this
subpart remain eligible for certain types of financial assistance under
the RE Act, including loan guarantees and rural development loans.

[59 FR 13620, Mar. 22, 1994, as amended at 61 FR 66874, Dec. 19,
1996]

§ 1786.168   Borrowers who prepaid under this part
prior to October 21, 1992.

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(a) A borrower that had prepaid, prior to the date of enactment of
Public Law 102–428 (106 Stat. 2183) on October 21, 1992, at a discount
rate as provided at 7 CFR part 1786, subpart C:

(1) Shall not be eligible except at the discretion of the Administrator
as stated in paragraph §1786.167(a), to apply for or receive direct or
insured loans during the 180-month period beginning on the date of the
prepayment; and

(2) Shall not be eligible to apply for or receive direct or insured
loans from RUS until the borrower has repaid to the RUS the sum of:

(i) The amount (if any) by which the discount the borrower received by
reason of the prepayment exceeds the discount the borrower would have
received had the discount been based on the cost of funds to the
Department of the Treasury as calculated at §1786.153 at the time of the
prepayment; and

(ii) Interest on the amount described in paragraph (a)(2)(i) of this
section for the period beginning on the date of the prepayment and ending
on the date of the repayment, at a rate equal to the average annual cost
of borrowing by the Department of the Treasury. This rate will be
calculated first on the date of prepayment and at one year intervals from
that date based on the same U.S. Treasury issues published in the Federal
Reserve Statistical Release closest to that date. The Treasury rate of
interest to be applied for each year will be the rate for the Treasury
issue of comparable maturity to the number of years from the prepayment
date to the repayment date and at one year intervals thereafter.

(b) If a borrower and the Administrator have entered into an agreement
with respect to a prepayment occurring before October 21, 1992, this
section shall supersede any provision in the agreement relating to the
restoration of eligibility for loans under the RE Act.

(c) Borrowers who prepaid prior to October 1, 1987, are eligible for
assistance under the RE Act in the same manner as other borrowers with
respect to loan guarantees and the rural development loans.

(d) During the 180 month period described in paragraph (a)(1) of this
section the Administrator may consider providing an insured loan, if the
conditions described in §1786.167(a) exist.

(e) Borrowers may not apply for direct or insured loans for facilities,
construction of which commenced prior to the expiration of the 180 month
period described in paragraph (a)(1) of this section.

§ 1786.169   Liability.

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It is the intent of this subpart that any failure on the part of RUS to
comply with any provisions of this subpart, including without limitation,
those provisions setting forth specified timeframes for action by RUS on
applications for prepayments or closing requests, shall not give rise to
liability of any kind on the part of the Government or any employees of
the Government including, without limitation, liability for damages, fees,
expenses or costs incurred by or on behalf of a borrower, private lender
or any other party.

§ 1786.170   Prepayment of loans approved after
December 20, 1993. [Reserved]

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§§ 1786.171-1786.199   [Reserved]

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Subpart G—Refinancing and Prepayment of RUS Guaranteed FFB Loans
Pursuant to Section 306(C) of the RE Act

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Authority:   7 U.S.C. 901 et seq.; Pub.
L. 103–354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.); sec. 1201(b) of
subtitle B of title 1 of Pub. L. 103–66, 107 Stat. 312.

Source:   58 FR 51008, Sept. 30, 1993,
unless otherwise noted.

§ 1786.200   Purpose.

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This subpart sets forth the policies and procedures of RUS through the
existing FFB program, whereby borrowers may prepay and refinance,
outstanding FFB Notes evidencing electric or telephone loans with FFB,
pursuant to the provisions of section 306(C) of the RE Act as added by
Public Law 103–66, 107 Stat. 312, enacted August 10, 1993.

§ 1786.201   Definitions and rules of
construction.

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(a) Definitions. As used in this subpart:

Administrator means the Administrator of the Rural Utilities
Service (RUS).

Borrower means any organization which has an outstanding note(s)
evidencing electric or telephone loans guaranteed by RUS, from FFB.

Business day means any such day on which both the Federal
Financing Bank and Federal Reserve Bank—New York are open for
business.

Electric loan means a loan made by FFB and guaranteed by RUS
under section 306 of the RE Act for electric service.

FFB means the Federal Financing Bank, an instrumentality and
wholly owned corporation of the United States.

Government means the United States of America, acting through
the Administrator of the Rural Utilities Service.

Loan guarantee means RUS's guarantee under section 306 of the RE
Act of a loan from FFB.

Payment date means the date that payment is due and is the last
day in a calendar quarter.

Prepayment penalty means the same as prepayment premium.

Prepayment premium shall have the meaning set forth at
§1786.207.

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.

Refinancing note shall have the meaning set forth at
§1786.206.

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 loan contract means the agreement, as amended, supplemented,
or restated from time to time, between a borrower and RUS providing for
loans or loan guarantees pursuant to the RE Act.

RUS mortgage means collectively those mortgages and security
agreements made by and between the borrower and the Government, securing
indebtedness evidencing electric and telephone loans or loan guarantees
made pursuant to RE Act. The term includes such mortgages regardless
whether third parties are mortgagees with RUS.

Supplemental lender means a private lender whose loan to the
borrower is secured under an RUS mortgage.

Telephone loan means a loan made by FFB and guaranteed by RUS
under section 306 of the RE Act for telephone service.

(b) Rules of construction. Unless the context shall otherwise
indicate, the terms defined in paragraph (a) of this section include the
plural as well as the singular, and the singular as well as the plural.
The words “herein,” “hereof” and “hereunder”, and words of similar import,
refer to this subpart as a whole.

[58 FR 51008, Sept. 30, 1993, as amended at 59 FR 66440, Dec. 27,
1994]

§ 1786.202   Prepayment and refinancing of RUS
guaranteed FFB loans.

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The borrower of an electric or telephone loan made by the FFB and
guaranteed by RUS under section 306 of the RE Act may, at the option of
the borrower, refinance or prepay a loan or an advance on the loan, or any
portion of the loan or advance in accordance with section 306C of the RE
Act, after meeting certain conditions using the procedures prescribed in
the note. After refinancing existing notes under this section, additional
prepayments or refinancings will be governed by the terms of the
refinancing note(s).

§ 1786.203   Special considerations.

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Generally all FFB borrowers with loans guaranteed by RUS whose FFB
notes have not been accelerated are eligible to prepay or refinance under
this part. All requests for prepayment or refinancing will be processed in
accordance with this subpart except that some requests for refinancing and
prepayments are more complicated and thus will involve special
considerations. These requests will have to be handled on a case by case
basis and include:

(a) Telephone borrowers who are required to meet certain terms of their
indenture;

(b) Borrowers who have amended their old form note or have already
repriced prior to September 30, 1993;

(c) Borrowers that have been involved in a merger or consolidation;

(d) Borrowers whose obligations to RUS, FFB notes, or security
instruments differ from those normally used;

(e) A request to prepay or refinance an amount of less than $100,000 or
an amount of less than the full amount of an advance outstanding; or

(f) A request to prepay or refinance a note that includes unadvanced
loan funds.

§ 1786.204   Limitations.

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(a) No more than three refinancing notes will be executed for any
borrower per calendar year.

(b) The borrower may not select a term for the refinanced advance that
ends after the maturity date set for that advance.

§ 1786.205   Application procedure.

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(a) Any borrower seeking to prepay or refinance an advance from the FFB
under this subpart should apply by letter to the appropriate RUS Regional
Director or, in the case of power supply borrowers, to the Director of the
Power Supply Division. The borrower will be required to submit
applications and elections in a digital format to be supplied by RUS. The
application letter shall provide the following:

(1) Borrower's RUS designation;

(2) Borrower's name and address;

(3) Listing of each note to be prepaid by loan designation, RUS note
number, RUS account number, advance date, maturity date, original amount,
outstanding balance, and date(s) of any substitute FFB note(s) amending
the original FFB Note;

(4) A statement of the borrower's intention to finance the premium by
an addition to principal balance or to pay the premium in cash or with
unsecured debt;

(5) A statement of the maturity options that the borrower wishes to
select;

(6) Such additional information as the Administrator may request.

(b) Requests for refinancing or prepayment will ordinarily be processed
in the order that they are received. Borrower's may withdraw an
application by notifying the appropriate RUS office in which they filed
the application.

(c) When the request for prepayment or refinancing is approved for
processing the borrower will be provided with appropriate instructions,
documents and forms which may include but are not limited to the
following:

(1) An FFB refinancing note;

(2) Resolution of Board of Directors;

(3) Legal Opinion;

(4) Certificate of Secretary;

(5) Waiver of Notice;

(6) Notice to borrower electing an effective date other than a
scheduled quarterly payment date (if applicable);

(7) Documentation of obligations secured pursuant to section 1786.208
if any; and

(8) Security instrument.
(Approved by the Office of Management and
Budget under control number 0572–0032)

§ 1786.206   Refinancing note.

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(a) RUS will issue a replacement guaranty for refinancing notes
delivered to FFB to replace and substitute for existing FFB notes in
connection with any refinancing by FFB pursuant to section 306C of the RE
Act.

(b) Generally, refinancing notes will, to the extent practicable,
consolidate all of a borrower's existing FFB notes which have been
guaranteed by RUS and containing terms and conditions as FFB may require
and RUS and the borrower may accept.

(c) Notwithstanding any contrary provision contained in this subpart,
RUS will give preference to processing refinancings that utilize a generic
form of refinancing note in the event that FFB prescribes one.

[58 FR 51008, Sep. 30, 1993; 58 FR 58729, Nov. 3, 1993]

§ 1786.207   Prepayment premium.

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(a) A premium shall be assessed against a borrower that refinances or
prepays a loan or loan advance, or any portion of a loan or advance, under
this section. RUS will collect the prepayment premium as calculated by
FFB. FFB will calculate this premium as described in this section. Except
as provided in paragraph (b) of this section, the premium shall be equal
to the lesser of:

(1) The difference between the outstanding principal balance of the
loan being refinanced and the present value of the loan discounted at a
rate equal to the then current cost of funds to the Department of the
Treasury for obligations of comparable maturity to the loan being
refinanced or prepaid;

(2) 100 percent of the amount of interest for 1 year on the outstanding
principal balance of the loan or loan advance, or any portion of the loan
or advance, being refinanced, multiplied by the ratio that:

(i) The number of quarterly payment dates between the date of the
refinancing or prepayment and the maturity date for the loan advance;
bears to

(ii) The number of quarterly payment dates between the first quarterly
payment date that occurs 12 years after the end of the year in which the
amount being refinanced was advanced and the maturity date of the loan
advance; and

(3)(i) The present value of 100 percent of the amount of interest for 1
year on the outstanding principal balance of the loan or loan advance, or
any portion of the loan or advance, being refinanced or prepaid; plus

(ii) For the interval between the date of the refinancing or prepayment
and the first quarterly payment date that occurs 12 years after the end of
the year in which the amount being refinanced or prepaid was advanced, the
present value of the difference between:

(A) Each payment scheduled for the interval on the loan amount being
refinanced or prepaid; and

(B) The payment amounts that would be required during the interval on
the amounts being refinanced or prepaid if the interest rate on the loan
were equal to the then current cost of funds to the Department of the
Treasury for obligations of comparable maturity to the loan being
refinanced or prepaid.

(b)(1) Except as provided in paragraph (b)(2) of this section, the
premium provided by paragraph (a)(1) of this section shall be required for
refinancing or prepayment under this section.

(2) In the case of a loan advanced under an agreement that permits the
refinancing or prepayment of the loan advance based on the payment of 1
year of interest on the outstanding principal balance of the loan advance,
a borrower may, in lieu of the premium required by paragraph (a)(1) of
this section, pay a premium as provided by:

(i) Paragraph (a)(2) of this section, if the loan advance has reached
the 12-year maturity required under the loan agreement for the refinancing
or prepayment; or

(ii) Paragraph (a)(3) of this section, if the loan advance has not
reached the 12-year maturity required under the loan agreement for the
refinancing or prepayment.

§ 1786.208   Increased principal.

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A borrower can meet the premium requirements by increasing the
outstanding principal balance of the loan advance that is being
refinanced. If it does so the borrower shall make a payment at the time of
the refinancing equal to 2.5 percent of the amount of the premium that is
added to the outstanding principal balance of the loan.

§ 1786.209   Outstanding loan
documents.

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(a) Except as expressly provided in this subpart, the borrower shall
comply with all provisions of its RUS loan contract, its outstanding notes
issued to RUS, and the RUS mortgage.

(b) Nothing in this subpart shall affect any rights of supplemental
lenders under the RUS mortgage or the rights of any other creditors of the
borrower.

(c) Nothing in this subpart shall prohibit a borrower from making
prepayments on any loans pursuant to the RE Act in accordance with the
terms thereof or as may be otherwise permitted by law.

§ 1786.210   Approvals.

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The borrower shall be responsible for obtaining all approvals necessary
to consummate the transaction as required by the refinancing note,
including such approvals as may be required by regulatory bodies and other
lenders.

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