Sale, lease, or transfer of capital assets

§ 1717.613

7 CFR Ch. XVII (1–1–09 Edition)

prior written approval of RUS, a borrower shall not deposit funds from
loans made or guaranteed by RUS in
any bank or other depository that is
not insured by the Federal Deposit Insurance Corporation or other Federal
agency acceptable to RUS, or in any
account not so insured.
§ 1717.613 RUS approval of data processing and system control equipment.
If a borrower’s mortgage or loan contract requires the borrower to obtain
approval from RUS before purchasing
data processing equipment or system
control equipment, such approval is
hereby granted if the equipment will
not be financed by RUS.

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§ 1717.614 Notification of rate changes.
If a distribution borrower is required
by its loan documents to notify RUS in
writing of proposed changes in electric
rates more than 30 days prior to the effective date of such rates, the required
notification period shall be 30 days.
Moreover, such notification shall be required only upon the request of RUS.
§ 1717.615 Consolidations and mergers.
A distribution or power supply borrower may without the prior approval
of RUS, consolidate or merge with any
other corporation or convey or transfer
the mortgaged property substantially
as an entirety if the following conditions are met:
(a) Such consolidation, merger, conveyance or transfer shall be on such
terms as shall fully preserve the lien
and security of the RUS mortgage and
the rights and powers of the mortgagees;
(b) The entity formed by such consolidation or with which the borrower
is merged or the corporation which acquires by conveyance or transfer the
mortgaged property substantially as an
entirety shall execute and deliver to
the mortgagees a mortgage supplemental in recordable form and containing an assumption by such successor entity of the due and punctual
payment of the principal of and interest on all of the outstanding notes and
the performance and observance of
every covenant and condition of the
mortgage;

(c) Immediately after giving effect to
such transaction, no default under the
mortgage shall have occurred and be
continuing;
(d) The borrower shall have delivered
to the mortgagees a certificate of its
general manager or other officer, in
form and substance satisfactory to
each of the mortgagees, which shall
state that such consolidation, merger,
conveyance or transfer and such supplemental mortgage comply with this
section and that all conditions precedent herein provided for relating to
such transaction have been complied
with;
(e) The borrower shall have delivered
to the mortgagees an opinion of counsel in form and substance satisfactory
to each of the mortgagees; and
(f) The entity formed by such consolidation or with which the borrower is
merged or the corporation which acquires by conveyance or transfer the
mortgaged property substantially as an
entirety shall be an entity having:
(1) Equity equal to at least 27% of its
total assets on a pro forma basis after
giving effect to such transaction;
(2) A pro forma TIER of not less than
1.25 and a pro forma DSC of not less
than 1.25 for each of the two preceding
calendar years;
(3) Net utility plant equal to or
greater than 1.0 times its total longterm debt on a pro forma basis.
[60 FR 67405, Dec. 29, 1995, as amended at 65
FR 51748, Aug. 25, 2000; 67 FR 70153, Nov. 21,
2002]

§ 1717.616 Sale, lease, or transfer of
capital assets.
A distribution borrower may without
the prior approval of RUS sell, lease, or
transfer any capital asset if the following conditions are met:
(a) The borrower is not in default;
(b) In the most recent year for which
data are available, the borrower
achieved a TIER of at least 1.25, DSC of
at least 1.25, OTIER of at least 1.1, and
ODSC of at least 1.1 in each case based
on the average or the best 2 out of the
3 most recent years;
(c) The sale, lease, or transfer of assets will not reduce the borrower’s existing or future requirements for energy or capacity being furnished to the
borrower under any wholesale power

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Rural Utilities Service, USDA

§ 1717.651

contract which has been pledged as security to the government;
(d) Fair market value is obtained for
the assets;
(e) The aggregate value of assets
sold, leased, or transferred in any 12month period is less than 10 percent of
the borrower’s net utility plant prior
to the transaction;
(f) The proceeds of such sale, lease, or
transfer, less ordinary and reasonable
expenses incident to such transaction,
are immediately:
(1) Applied as a prepayment of all
notes secured under the mortgage
equally and ratably;
(2) In the case of dispositions of
equipment, materials or scrap, applied
to the purchase of other property useful in the borrower’s utility business;
or
(3) Applied to the acquisition of construction of utility plant.

SOURCE: 60 FR 48877, Sept. 21, 1995, unless
otherwise noted.

[60 FR 67405, Dec. 29, 1995, as amended at 65
FR 51748, Aug. 25, 2000]

(a) Policy. RUS electric borrowers are
encouraged to utilize their own funds
to participate in the economic development of rural areas, provided that such
activity does not in any way put government funds at risk or impair a borrower’s ability to repay its indebtedness to RUS and other lenders. In considering whether to make loans, investments, or guarantees, borrowers are expected to act in accordance with prudent business practices and in conformity with the laws of the jurisdictions in which they serve. RUS assumes that borrowers will use the latitude afforded them by section 312 of
the RE Act primarily to make needed
investments in rural community infrastructure projects (such as water and
waste systems, garbage collection services, etc.) and in job creation activities
(such as providing technical, financial,
and managerial assistance) and other
activities to promote business development and economic diversification in
rural communities. Nonetheless, RUS
believes that borrowers should continue to give primary consideration to
safety and liquidity in the management of their funds.
(b) Applicability of this subpart. This
subpart applies to all distribution and
power supply borrowers regardless of
when their loan contract or mortgage
was executed.

§ 1717.617 Limitations
on
distributions.
If a distribution or power supply borrower is required by its loan documents
to obtain prior approval from RUS before declaring or paying any dividends,
paying or determining to pay any patronage refunds, or retiring any patronage capital, or making any other
cash distributions, such approval is
hereby given if the following conditions are met:
(a) After giving effect to the distribution, the borrower’s equity will be
greater than or equal to 30 percent of
its total assets;
(b) The borrower is current on all
payments due on all notes secured
under the mortgage;
(c) The borrower is not otherwise in
default under its loan documents; and
(d) After giving effect to the distribution, the borrower’s current and accrued assets will be not less than its
current and accrued liabilities.

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Subpart N—Investments, Loans,
and Guarantees by Electric
Borrowers
AUTHORITY: 7 U.S.C. 901–950b; Pub.L. 103–
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.); Title
I, Subtitle D, Pub.L. 100–203, 101 Stat. 1330.

§ 1717.650

Purpose.

This subpart sets forth general regulations for implementing and interpreting provisions of the RUS mortgage and loan contract regarding investments, loans, and guarantees made
by electric borrowers, as well as the
provisions of the Rural Electrification
Act of 1936, as amended, including section 312 (7 U.S.C. 901 et seq.) (RE Act),
permitting, in certain circumstances,
that electric borrowers under the RE
Act may, without restriction or prior
approval of the Administrator of the
Rural Utilities Service (RUS), invest
their own funds and make loans or
guarantees.
§ 1717.651

General.

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