[Federal Register Volume 73, Number 194 (Monday, October 6, 2008)]
[Proposed Rules]
[Pages 58085-58099]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-23444]
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DEPARTMENT OF THE INTERIOR
Bureau of Reclamation
43 CFR Part 403
RIN 1006-AA53
Bureau of Reclamation Loan Guarantees
AGENCY: Bureau of Reclamation, Interior.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Bureau of Reclamation (Reclamation) proposes this rule
establishing eligibility criteria and program requirements for loan
guarantees authorized by the Twenty-first Century Water Works Act
(Title II of Pub. L. 109-451; 43 U.S.C. 2421-2434) (Act). This rule is
intended to define for potential participants how the loan guarantees
authorized by the Act will be administered. The Act authorizes the
Secretary of the Interior (Secretary) to make loan guarantees for three
categories of projects:
Category (A) projects are rural water supply projects as defined in
section 102(9) of the Reclamation Rural Water Supply Act of 2006 (Title
I of Pub. L. 109-451; 43 U.S.C.2401-2409) (Rural Water Supply Act of
2006);
A category (B) project is an extraordinary operation and
maintenance activity for, or the rehabilitation or replacement of, a
facility that is authorized by Federal reclamation laws and constructed
by the United States under such law; or in connection with which there
is a repayment or water service contract executed by the United States
under Federal reclamation law; or
A category (C) project is an improvement to water infrastructure
directly associated with a reclamation project that, based on a
determination of the Secretary improves water management; and fulfills
other Federal goals.
For purposes of this rule, these will be referred to as category
(A), (B), or (C) projects. The Act provides that, subject to the
availability of appropriations, the Secretary of the Interior may
provide loan guarantees for eligible projects. The Act requires the
Secretary to develop criteria for determining the eligibility of a
project for financial assistance, and to publish them in the Federal
Register. The intent of this rulemaking is to meet this requirement, as
well as to define for potential participants how the loan guarantee
will be administered. Reclamation will administer the program.
Reclamation will take into account the comments on this rule in
developing final regulations. Reclamation recognizes that the rule will
be modified in the future to more specifically address category (A)
projects and to address modifications in administration as a result of
experience gained through the first requests.
DATES: Submit comments on the rule by November 5, 2008. The Office of
Management and Budget has up to 60 days to approve the information
collection in this rule, but may respond after 30 days; therefore
public comment on the information collection must be received on or
before November 5, 2008. Reclamation plans to hold informational
meetings on the proposed rule and program.
ADDRESSES: You may submit comments on this rule, identified by the
number 1006-AA53, by one of the following methods:
--Use of the Federal rulemaking Web site: http://www.regulations.gov.
Search on docket identification number BOR-2008-0005 when submitting
comments on this rule. Follow the instructions for submitting comments.
--By mail to: Bureau of Reclamation, Denver Federal Center, P.O. Box
25007, Building 67, Denver CO 80225, Attention: Randy Christopherson,
Mail Code 84-55000. Please include the number 1006-AA53 in your
correspondence.
Please submit comments on the information collection to the Desk
Officer for the Department of the Interior at the Office of Management
and Budget, Office of Information and Regulatory Affairs, via facsimile
to (202) 395-6566, or e-mail to [email protected]. A copy of
your comments should also be directed to the Bureau of Reclamation,
attention Randy Christopherson at the contact information.
You can obtain copies of the information collection forms by
contacting us as specified in the FOR FURTHER INFORMATION CONTACT
section.
FOR FURTHER INFORMATION CONTACT: Randy Christopherson, Bureau of
Reclamation, P.O. Box 25007, Mail Code: 84-55000, Denver, CO 80225.
Telephone: (303) 445-2729. E-mail: [email protected].
SUPPLEMENTARY INFORMATION:
I. Background
The Act, enacted as Title II of Public Law 109-451 on December 22,
2006, authorizes the Secretary to issue loan guarantees to assist non-
federal borrowers in financing (A) rural water supply projects; (B)
extraordinary maintenance and rehabilitation of Reclamation project
facilities; and (C) improvements to infrastructure directly related to
a Reclamation project. For purposes of these loan guarantees, the Act
defines the authorized non-federal borrower as (a) a State (including a
department, agency, or political subdivision of a State); or (b) a
conservancy district, irrigation district, canal company, water users'
association, Indian tribe, an agency created by interstate compact, or
any other entity that has the capacity to contract with the United
States.
Authority and responsibility for implementing the provisions of the
Act are delegated to Reclamation. Reclamation's rulemaking will
establish the eligibility criteria and program requirements for loan
guarantees authorized by the Act. Reclamation expects to supplement
these rules in the future with eligibility criteria and program
requirements specific to those projects described in the Rural Water
Supply Act of 2006 that are also deemed eligible for loan guarantees in
accordance with section 202(6)(A). Section 202(6)(A) provides authority
to issue loan guarantees for rural water supply programs (category A
projects). The Rural Water Supply Act of 2006 defines the term rural
water supply project to include incidental noncommercial livestock
watering and noncommercial irrigation of vegetation and small gardens
of less than 1 acre, and projects to improve rural water
infrastructure. Rural water projects must receive approval from the
Congress prior to construction and are subject to the availability of
appropriations. Accordingly, Reclamation expects to target initial
solicitations for guaranteed loans pursuant to the Act on Category B
and Category C projects and on assistance for operation and maintenance
rather than assistance with new construction.
[[Page 58086]]
Discussion of Proposed Rule
Section 203 of the Act requires the Secretary to develop criteria
for determining the eligibility of a project for financial assistance,
and to publish them in the Federal Register. The intent of this rule is
to provide program requirements and eligibility criteria for both the
non-federal borrower and lenders. The eligibility criteria must include
(1) the lender's submission of an application to the Secretary; (2)
demonstration of the creditworthiness of the project, including a
determination by the Secretary that any financing for the project has
appropriate security features to ensure repayment; (3) demonstration by
the non-federal borrower of its ability to repay the project financing
from user fees or other dedicated revenue sources; (4) demonstration by
the non-federal borrower of its ability to pay all operations,
maintenance, and replacement costs of the project facilities; and (5)
other criteria as the Secretary determines to be appropriate. Section
403.7 of this rule provides generally the requirements regarding what
information must be included in an application and section 403.10
provides the criteria on which Reclamation will evaluate a non-federal
borrower's application. Section 403.11 identifies the prioritization
criteria that Reclamation will use to determine which loan guarantee
applications will be selected to participate in the loan guarantee
program.
We invite you to comment on all the requirements set forth in this
rule, particularly regarding the appropriate requirements to provide
protections to the financial interests of the United States. In
addition, an information collection package has been prepared. The
application for a loan guarantee identifies in more detail the
supporting documentation that must accompany it, including: the current
and previous 2 years financial and income statements; the operating
budget for the current operating cycle, a financial feasibility
analysis and projected budgets, including schedule of all current
installment debt; preliminary project plans and detailed cost
estimates; pro-forma cashflows; the proposed loan amortization schedule
and documents outlining proposed terms and conditions of the debt to be
guaranteed; the non-federal borrower's proposed environmental
compliance actions; description of any debt; the lender's credit
evaluation; a description of any security available for the loan;
authorizing resolutions of certificates; and any other documents and
information the Secretary may request, including all documents and
information relied upon by the lender in evaluating the non-federal
borrower's initial loan request. The Act specifies eligibility criteria
that must be included in subsection 203(a)(2). Section 203(b) of the
Act, authorizes the Secretary to waive any of the criteria in
subsection 203(a)(2) that the Secretary determines to be duplicative or
unnecessary because of an action already taken by the United States.
Reclamation would waive such criteria only in cases where the criteria
have already been demonstrated to be satisfied.
Consistent with statutory requirement, demonstration of a
borrowers' ability to repay the debt and continue operations and
maintenance of its facility is a high priority of the loan guarantee
program and must be demonstrated to the satisfaction of the Secretary.
Reclamation will adopt policies to further establish guidance to ensure
that borrowers and lenders use their best efforts to ensure the success
of guaranteed loans. Reclamation will only offer loan guarantees to
eligible projects that demonstrate, to the satisfaction of the
Secretary, the creditworthiness of the project, including a
determination by the Secretary that any financing for the project has
appropriate security features to ensure repayment; the ability of the
borrower to repay all project financing; and pay all operations,
maintenance, and replacement costs of the project facilities.
The statute explicitly defines the scope of lenders that are
eligible to participate in the program. This is addressed in section
403.37 of this rule. A prospective lender must submit proof that it is
eligible pursuant to the statute and meet the requirements as set out
in this rule. A lender that meets the requirements and wishes to
participate in the program must execute an agreement with Reclamation
and thereupon will be considered an approved lender for a period of 2
years. The requirements, as set out in Sec. Sec. 403.37, 403.38, and
403.39 of this rule, are intended to ensure that the lender has the
appropriate experience and expertise to meet its fiduciary obligations
in connection with the debt guaranteed pursuant to the Act. It is
intended that lenders, who will bear at least 20 percent of the risk of
the guaranteed loan, will exercise a high level of care and diligence
in the underwriting and due diligence of the loans. As described in
Section 403.39, we are proposing to require that lenders provide
Reclamation periodic financial reports on the status and condition of
the loan, consistent with the terms of the Lender's Agreement; to
service the loan consistent with the regulation and the Lender's
Agreement and notify Reclamation promptly if it becomes aware of any
problems or irregularities concerning the project or the ability of the
borrower to make payment on the loan. We invite you to comment on the
proposed lender eligibility criteria and requirements. We are
specifically interested in how the criteria and requirements would be
applied should the lender fall from eligibility after the loan has been
originated. Comments are also invited on the potential additional
efficiency or productivity benefits that may be realized by the
improvement, repair, or replacement of the infrastructure, facilities,
or asset.
The Act defines the term ``project'' to include ``an extraordinary
operation and maintenance activity for, or the rehabilitation or
replacement of a facility that is authorized by Federal reclamation law
and constructed by the United States under such law; or in connection
with which there is a repayment or water service contract executed by
the United States'' (Category B). The statute does not define the
phrase ``extraordinary operation and maintenance activity.'' In section
403.2, we propose to define ``extraordinary operation and maintenance
activity as major, non-recurring maintenance to Reclamation-owned or
operated facilities, or facility components, that is intended to ensure
the continued safe, dependable, and reliable delivery of authorized
reclamation project benefits; and greater than 10 percent of the
borrower's annual O & M budget for the facility, or greater than
$100,000.
Reclamation developed this definition during its Managing for
Excellence efforts. The definition, developed as part of the public
process associated with these efforts, was vetted both within
Reclamation and with its water users, and it has been adopted in this
rule. We request comment on this definition, the percentage and dollar
thresholds, and the application and use of the definition within the
proposed program.
Project Costs. In section 403.2, we propose to define project costs
as the expected financial obligations which may be incurred for the
development and support of the various features of an eligible project,
as specified in Sec. 403.50. The key elements of estimating eligible
project costs are detailed in existing Reclamation policies. Section
204 of the Act provides that the Secretary shall not issue loan
guarantees that exceed 90 percent of the cost of the project, as
estimated at the time the loan guarantee
[[Page 58087]]
is issued. Also, section 403.31 of this rule provides that the United
States will guarantee up to 80 percent of eligible losses on a
guaranteed loan, including principal outstanding and interest accrued
as of the time of default by a borrower consistent with Federal credit
policies under OMB circular A-129. Section 403.50 of this rule
identifies the type of project costs that will be considered eligible
to be included under a loan guarantee and which costs will not be
considered eligible costs.
Defaults. Consistent with section 205 of the Act, we are proposing
in Subpart F the options and processes that may be available if a
borrower defaults on an obligation. Section 205 of the Act provides
that, if a borrower defaults on the obligation, the holder of the loan
guarantee shall have the right to demand claim payment from the
Secretary per the terms of the Loan Note Guarantee Agreement. Section
403.66 of this rule prescribes actions and timelines for default
proceedings, reflecting requirements both for default proceedings
against loans for which collateral is pledged and against those for
which it is not. The timeline and proceedings are expected to be
shorter where there is no collateral, since liquidation is not a
factor.
Interest Rate. Section 204 of the Act provides that an obligation
shall bear interest at a rate that does not exceed a level that the
Secretary determines to be appropriate, taking into account the
prevailing rate of interest in the private sector for similar loans and
risks. In section 403.52 of this rule, we propose to require loans to
bear fixed interest at a rate or rates negotiated between the borrower
and the lender. However, rates charged should be similar to rates
customarily charged to borrowers in the ordinary course of business.
Interest rates are subject to Secretarial review and approval to
determine appropriateness. Reclamation will consult with the Department
of Treasury on appropriate interest rates.
Term of Loan. A loan guaranteed under the Act must provide for
complete amortization within 40 years. Section 403.48 of this rule
recognizes that lenders may offer shorter terms. Reclamation will not
approve a loan guarantee that exceeds the financial capability of the
borrower, or for a term that exceeds the useful life of the project.
Nonsubordination and Superior Rights. Consistent with section 205
of the Act, we propose in section 403.56 of this rule that no loan
guaranteed under the Act shall be subordinated to other financing. We
further propose that the lender must obtain a position of parity with
regard to non-collateralized obligations of the borrower. This means
that in the event of a default, all non-secured lenders bear the risk
of loss on a proportionate basis. Further, the non-guaranteed portion
of a loan will not be paid first nor given any preference or priority
over the guaranteed portion. Also, section 205(b)(2) of the Act states
that the rights of the Secretary, with respect to any property acquired
pursuant to a loan guarantee or related agreement, shall be superior to
the rights of any other person with respect to the property.
Prepayment and refinancing. The Act allows for prepayment and
refinancing of the terms of a loan guarantee subject to the consent of
the Secretary. Section 403.53 of this rule recognizes that prepayment
and refinancing terms of a loan may be negotiated between the non-
federal borrower and the lender, subject to the Secretary's consent as
part of the overall approval of the loan to be guaranteed. Any changes
to such terms must also be approved by the Secretary, and to the extent
such changes were not captured in the original cost estimate for the
loan guarantee, such approval would be subject to the availability of
appropriations, in addition to all other applicable statutory and
regulatory requirements.
Full Faith and Credit. Consistent with section 211 of the Act, we
propose in section 403.3 of this rule to pledge the full faith and
credit of the United States to the payment of all guarantees issued,
with respect to principal and interest. Section 403.3 further proposes
that the full faith and credit of the United States is not contestable
except in the case of fraud or misrepresentation of which the lender
has actual knowledge, participates in, or condones.
Interagency coordination and cooperation. Section 209 of the Act
requires the Secretary to consult with the Secretary of Agriculture
prior to implementing a loan guarantee program. Reclamation has been
working closely with the Department of Agriculture, and has gained
valuable information on carrying out such programs. Section 209 also
requires that a memorandum of agreement will be entered providing for
the Department of Agriculture to carry out financial appraisal
functions and loan guarantee administration activities. Both
Departments are working toward development of this agreement. It is not
the intent that this agreement will place any undue burdens on the
implementation of the program; rather, Reclamation will be afforded the
experience and help of the Department of Agriculture, which has
extensive experience in issuing loan guarantees.
Termination of Authority. Section 215 of the Act provides that the
Secretary's authority to issue loan guarantees terminates 10 years
after the date of enactment of the Act, which will be December 2016.
However, the termination of authority shall have no effect on any loans
already guaranteed or on the administration of any loan guaranteed
prior to the date of the termination.
Duplicative Assistance. With the exception of Rural Water projects
authorized under Title I of Public Law 109-451, loan guarantees under
this program cannot be paired with other Federal assistance for the
same project.
II. Procedural Requirement
1. Regulatory Planning and Review (Executive Order (E.O.) 12866)
The Office of Management and Budget (OMB) has determined that this
rule is a significant rule and has reviewed it under the requirements
of E.O. 12866.
The loan guarantee program addressed by this rule will facilitate
the financing of extraordinary maintenance and rehabilitation needs of
Reclamation projects and improvements to facilities directly associated
with them. Beneficiaries already have financial responsibility for
these costs, but often have significant difficulty meeting these
responsibilities when the expenses are of an extraordinary nature.
Facilitating the financing of these extraordinary expenditures is a
tool that may help to ensure the continued benefits currently being
generated by Reclamation projects throughout the western United States.
In implementing this rule, we plan to use application forms very
similar to those currently used by the U.S. Department of Agriculture
(USDA) for its Rural Development Loan Guarantee Program (USDA Program).
Review and approval for the use of these forms is taking place
concurrently with the development of this rule. However, the facilities
being repaired or rehabilitated with financing assistance under our
proposed loan guarantee program likely will not be the same types of
facilities whose construction is financed by the USDA Program.
Reclamation has consulted with USDA regarding the details of USDA's
related programs, and will continue to do so. These consultations will
likely result in USDA providing some assistance in the administration
of our programs under Titles I and II of Public Law 109-451.
2. Regulatory Flexibility Act
The Department of the Interior (Interior) certifies that this
action will not have a significant economic effect
[[Page 58088]]
on a substantial number of small entities under the Regulatory
Flexibility Act (5 U.S.C. 601, et seq.). The entities eligible for loan
guarantees under this program may include small entities defined in the
Regulatory Flexibility Act. However, this rule does not impose a
requirement for small businesses to report or keep records on any of
the requirements contained in this rule and does not mandate
participation. Therefore, we have determined that the rule will not
have a significant economic impact on a substantial number of small
entities.
3. Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (UMR Act) (2
U.S.C. 1531 et seq.) requires each Federal agency to prepare a written
assessment of the effects of any Federal mandate in an agency rule that
may result in the expenditure by State, local and tribal governments,
in the aggregate, or by the private sector, of $100 million or more
(adjusted annually for inflation) in any one year. The UMR Act also
requires a Federal agency to develop an effective process to permit
timely input by elected officials of State, tribal, or local
governments on a proposed ``significant intergovernmental mandate,''
and requires an agency plan for giving notice and opportunity to
provide timely input to potentially affected small governments before
establishing any requirements that might significantly or uniquely
affect those small governments.
The term Federal mandate is defined in the UMR Act to mean a
Federal intergovernmental mandate or a Federal private sector mandate.
Although this rule will impose certain requirements on non-Federal
governmental and private sector applicants for loan guarantees, the UMR
Act's definitions of the terms ``Federal intergovernmental mandate''
and ``Federal private sector mandate'' exclude, among other things, any
provision in legislation, statute, or regulation that is a condition of
Federal assistance or a duty arising from participation in a voluntary
program (2 U.S.C. 658(5) and (7), respectively).
This rule does not impose an unfunded mandate or a requirement to
expend monies on the part of State, local, or tribal governments or
communities, or the private sector. Requests from any of these entities
for loan guarantees under the proposed rules are strictly voluntary.
Reclamation is not imposing a duty, requirement, or mandate on State,
local, or tribal governments or communities, or the private sector to
request such financing assistance. Thus this rule falls under the
exceptions in the definitions of ``Federal intergovernmental mandate''
and ``Federal private sector mandate'' for requirements that are a
condition of Federal assistance or a duty arising from participation in
a voluntary program. Therefore, the Act does not apply to this
rulemaking and a statement containing information required by the
Unfunded Mandates Reform Act (2 U.S.C. 1531, et seq.) is not required.
4. Takings (E.O. 12630 and E.O. 13406)
Under the criteria in E.O. 12630 and E.O. 13406, this rule does not
have any significant takings implications. This rule sets forth the
requirements for requesting and obtaining loan guarantees from
Reclamation to assist in financing eligible projects for which
Reclamation project beneficiaries are already financially responsible.
While some of the project beneficiaries' property may be pledged as
collateral for the loans to be guaranteed, the property would only be
transferred from the owner if default occurs and such a situation would
not constitute a taking. A Takings Implication Assessment is therefore
not required.
5. Federalism (E.O. 13132)
Under the criteria in E.O. 13132, this rule does not have any
federalism implications to warrant the preparation of a Federalism
Assessment. The rule is not associated with, nor will it have
substantial direct effects on the States, on the relationship between
the National Government and the States, or on the distribution of power
and responsibilities among the various levels of government. A
Federalism Assessment is not required.
6. Civil Justice Reform (E.O. 12988)
This rule complies with the requirements of E.O. 12988.
Specifically, this rule:
(a) Does not unduly burden the judicial system;
(b) Meets the criteria of section 3(a) requiring that all
regulations be reviewed to eliminate errors and ambiguity and be
written to minimize litigation; and
(c) Meets the criteria of section 3(b)(2) requiring that all
regulations be written in clear language and contain clear legal
standards.
7. Consultation with Indian Tribes (E.O. 13175)
Under the criteria of E.O. 13175, Reclamation has evaluated this
rule and determined that it would have no substantial effects on
Federally recognized Indian tribes. While many tribal entities may be
eligible to apply for loan guarantees from Reclamation under this rule,
such application is strictly voluntary.
8. Paperwork Reduction Act
This rule would require applicants to provide information that will
enable Reclamation to determine eligibility for the program and
creditworthiness. The information will also be necessary to evaluate
the merits of applications and effectively administer any guaranteed
loans. The rule also proposes to require that lenders submit
information to allow Reclamation to determine their eligibility for
participation and to submit reports and other information related to
loan guarantees and the borrower. Reclamation plans to use several
forms very similar to those currently used for various USDA Programs.
The purpose of the forms will be to obtain relevant financial
information including income and expenses, collateral assets, previous
credit history, and current loan status. Following are further details
regarding the information collection:
Title: Reclamation Loan Guarantees 43 CFR Part 403.
OMB No. 1006-NEW.
Frequency: One-time voluntary application.
Respondents for loan applications and participating lenders:
Eligible entities (described in Sec. 403.4 of the rule) that desire to
obtain a private loan guaranteed by Reclamation and eligible lenders
(described in Sec. 403.37) that wish to participate in the loan
guarantee program.
Estimated Total Number of Respondents: 76.
Estimated Number of Responses per Respondent: 1.2.
Estimated Total Annual Burden on Respondents, including form and
non-form requirements: 737 hours.
Comments are Invited on:
(a) Whether the proposed collection of information is necessary for
the proper performance of our functions, including whether the
information will have practical use;
(b) The accuracy of our burden estimate for the proposed collection
of information, including the validity of the methodology and
assumptions used;
(c) Ways to enhance the quality, usefulness, and clarity of the
information collected; and
(d) Ways to minimize the burden of the collection of information on
respondents.
As part of our continuing effort to reduce paperwork and respondent
burdens, Reclamation invites the public and other Federal agencies to
comment on any aspect of the reporting and recordkeeping burden. You
may submit
[[Page 58089]]
your comments directly to the Office of Information and Regulatory
Affairs, OMB. You should provide Reclamation with a copy of your
comments so that we can summarize all written comments and address them
in the final rule preamble. Refer to the ADDRESSES section for
instructions on submitting comments. You may obtain a copy of the
supporting statement for this new collection of information by
contacting Reclamation's Information Collection Clearance Officer at
(303) 445-2055.
The PRA provides that an agency may not conduct or sponsor a
collection of information unless it displays a currently valid OMB
control number. Until OMB approves this collection of information and
assigns an OMB control number and the regulation becomes effective, you
are not required to respond. The OMB is required to make a decision
concerning the collection of information of this proposed regulation
between 30 to 60 days after publication of this document in the Federal
Register. Therefore, a comment to OMB is best assured of having its
full effect if OMB receives it by November 5, 2008. This does not
affect the deadline for the public to comment to Reclamation on the
proposed regulation. OMB has up to 60 days to approve the information
collection in this rule, but may respond after 30 days; therefore
public comment on the information collection must be received on or
before November 5, 2008.
9. National Environmental Policy Act of 1969 (NEPA)
This document has been reviewed in accordance with the Council on
Environmental Quality (CEQ) regulations for implementing NEPA (40 CFR
Parts 1500-1508). Reclamation has determined that this action does not
constitute a major Federal action significantly affecting the quality
of the human environment and, in accordance with the National
Environmental Policy Act (NEPA) of 1969, 42 U.S.C. 4321 et seq., an
Environmental Impact Statement is not required. Loan applications will
be reviewed individually to determine compliance with NEPA.
10. Data Quality Act
In developing this rule, there was no need to conduct or use a
study, experiment, or survey requiring peer review under the Data
Quality Act (Pub. L. 106-554).
11. Effects on the Energy Supply (E.O. 13211)
This rule is not a significant energy action under the definition
in the E.O. 13211, in that it is not likely to have a significant
adverse effect on the supply, distribution, or use of energy. While
loan guarantees will more commonly be extended to water supply
facilities, any extension of the guarantees to power production
facilities would have the same beneficial effects of credit assistance.
No adverse effects on these facilities could result from the proposed
rule. A Statement of Energy Effects is therefore not required.
12. Clarity of This Regulation
We are required by E.O. 12866 and 12988, and by the Presidential
Memorandum of June 1, 1998, to write all rules in plain language. This
means each rule we publish must:
(a) Be logically organized;
(b) Use the active voice to address readers directly;
(c) Use clear language rather than jargon;
(d) Be divided into short sections and sentences; and
(e) Use lists and tables wherever possible.
If you believe we have not met these requirements, please send
comments to Reclamation as instructed in the ADDRESSES section. Please
make your comments as specific as possible, referring to specific
sections and how they could be improved. For example, you should tell
us the numbers of the sections or paragraphs that are unclearly
written, which sections or sentences are too long, the sections where
you believe lists or tables would be useful, etc.
13. Public Comments
Reclamation believes a 30 day public comment period is appropriate.
The Loan Guarantee rule may provide a helpful financial tool to help
accomplish Reclamation's goals. Reclamation has encouraged public
participation through public meetings and has incorporated into the
proposed rule public input from these meetings. The public was involved
in developing the framework documents which were utilized in preparing
the rule. Reclamation specifically addressed the Loan Guarantee program
during public meetings held in Salt Lake City, UT on September 19 and
20, 2006 and received valuable feedback. Considering that those
interested in the proposed rule are already aware of the framework and
have had opportunity to provide input through these public meetings,
Reclamation believes 30 days provides sufficient time to provide
additional input on the proposal.
Before including your name, address, phone number, e-mail address,
or other personal identifying information in your comment, you should
be aware that your entire comment--including your personal identifying
information--may be made publicly available at any time. While you can
ask us in your comment to withhold your personal identifying
information from public review, we cannot guarantee that we will be
able to do so.
List of Subjects in 43 CFR Part 403
Loan guarantee, Water supply.
Dated: September 29, 2008.
Kameran L. Onley,
Acting Assistant Secretary--Water and Science.
For the reasons stated in the preamble, the Bureau of Reclamation
proposes to add a new part 403 to Title 43 of the Code of Federal
Regulations as follows:
PART 403--RECLAMATION LOAN GUARANTEES
Subpart A--Loan Guarantee Program Overview
Sec.
403.1 What is the purpose of the program?
403.2 What terms are used in this part?
403.3 Are loan guarantees supported by the full faith and credit of
the United States?
403.4 Who is eligible for a loan guarantee?
403.5 What can I finance under the program?
403.6 How do I obtain a loan guarantee?
403.7 What must be included in an application package?
403.8 [Reserved]
403.9 What are the criteria for program eligibility?
403.10 How will Reclamation evaluate my application?
403.11 What criteria will be used to prioritize loan requests?
403.12-403.15 [Reserved]
403.16 What permits must I obtain?
403.17 Where can I get more information about loan guarantees?
403.18 Does this rule contain an information collection that
requires approval by OMB?
403. 19 [Reserved]
Subpart B--Borrower Roles and Responsibilities
403.20 As a borrower, what is my role in the loan guarantee program?
403.21 What is my role in preparation of environmental compliance
documents?
403.22 What is my role in preparing plans and specifications for the
project?
403.23-403.24 [Reserved]
403.25 What are the application and contractual requirements if I
apply for a guaranteed loan as a Joint Powers Authority (JPA)?
403.26-403.28 [Reserved]
Subpart C--Reclamation Roles and Responsibilities
403.29 What is Reclamation's role in the loan guarantee program?
403.30 What information will Reclamation maintain on the lender?
[[Page 58090]]
403.31 How much of the loan will Reclamation guarantee?
403.32 What is Reclamation's role in preparation of NEPA and other
environmental compliance documents?
403.33 Can Reclamation make exceptions to requirements in this rule?
403.34-403.36 [Reserved]
Subpart D--Lender Criteria and Responsibilities
403.37 Which lenders are eligible to participate in the program?
403.38 What other requirements must a lender meet to participate in
the program?
403.39 What is the lender's role in the program?
403.40 Can the lender cancel or modify a Conditional Commitment for
Guarantee, or transfer it to another lender?
403.41 Can a lender sell or transfer the Loan Note Guarantee
Agreement to another lender?
403.42 Can a lender sell the debt obligation in a secondary market?
403.43 What fees and costs is the lender responsible for?
403.44 Can Reclamation guarantee bonds sold to finance eligible
projects?
403.45-403.46 [Reserved]
Subpart E--Guaranteed Loan Terms and Details
403.47 What conditions must be met before a Loan Note Guarantee
Agreement is issued?
403.48 What is the maximum term I can obtain on a guaranteed loan?
403.49 Is there a limit on the size of a guaranteed loan?
403.50 What project costs are eligible to be covered by my
guaranteed loan?
403.51 What if my project cost exceeds the estimated loan guarantee
amount?
403.52 What interest rates and charges apply to my guaranteed loan?
403.53 Can I prepay or refinance a guaranteed loan?
403.54 When can an entity begin actual ``on the ground'' work on the
project to be financed?
403.55 [Reserved]
403.56 Can the repayment of a loan guarantee be subordinated to any
other financing?
403.57 Under what conditions would the United States not pay the
guaranteed portion of a loan?
403.58 Will the requirements of the Reclamation Reform Act of 1982
apply?
403.59-403.62 [Reserved]
Subpart F--Default Actions and Termination
403.63 What options do I have if I have problems repaying the
guaranteed loan?
403.64 How can Reclamation help me if I can't resolve repayment
problems with my lender?
403.65 What happens if I still can't make my payments after working
with the lender and Reclamation?
403.66 What are the actions and timelines associated with default
proceedings?
403.67 What is the process for liquidation where collateral has been
pledged?
403.68 What is the timeline for filing a Final Report of Loss?
403.69 [Reserved]
403.70 What interest does the lender have in the guaranteed loan
after Reclamation makes a loss payment?
403.71 What will Reclamation do if a borrower defaults?
403.72 When does the Loan Note Guarantee Agreement terminate?
403.73 What happens if the non-Federal party breaches the existing
Loan Note Guarantee Agreement?
Authority: Pub. L. 109-451, 120 Stat. 3345 (43 U.S.C. 2401 et
seq.).
Subpart A--Loan Guarantee Program Overview
Sec. 403.1 What is the purpose of the program?
(a) The purpose of the loan guarantee program is to provide Federal
assistance to eligible non-Federal borrowers for eligible projects
defined as follows:
(1) A rural water supply project;
(2) An extraordinary operation and maintenance (O&M) activity for,
or the rehabilitation or replacement of, a facility--
(i) That is authorized by Federal reclamation law and constructed
by the United States under such law; or
(ii) In connection with which there is a repayment or water service
contract executed by the United States under Federal reclamation law;
or
(3) An improvement to water infrastructure directly associated with
a reclamation project that, based on a determination of the Secretary--
(i) Improves water management; and
(ii) Fulfills other Federal goals.
(b) The program does not include loans for routine O&M work.
Sec. 403.2 What terms are used in this part?
The following definitions apply for terms used in this part:
Applicant means a non-Federal entity meeting the criteria in Sec.
403.4 that seeks to obtain a Reclamation-guaranteed loan for a project
meeting the criteria in Sec. 403.5. The applicant is often referred to
as ``you'' in this part.
Borrower means an Applicant who has entered into a Loan Note
Guarantee Agreement with an eligible lender and Reclamation.
Collateral means non-Federal property of value pledged as security
for satisfaction of the debt.
Conditional Commitment for Guarantee means a document issued by
Reclamation and accepted by the Applicant and the lender, with the
understanding of the parties that if the Applicant thereafter satisfies
all specified and precedent funding obligations and all other
contractual, statutory and regulatory requirements, or other
requirements specified in the document, DOI, the Applicant, and the
lender may execute a Loan Note Guarantee Agreement: Provided that the
Secretary may terminate a Conditional Commitment for Guarantee for any
reason at any time prior to the execution of the Loan Note Guarantee
Agreement. The Conditional Commitment is non-binding. Reclamation will
only offer Conditional Commitments for Guarantee to the extent
appropriations are available to support the loan guarantee.
Extraordinary operation and maintenance means major, non-recurring
maintenance to Reclamation-owned or operated facilities, or facility
components, that is:
(1) Intended to ensure the continued safe, dependable, and reliable
delivery of authorized Reclamation project benefits; and
(2) Greater than 10 percent of the borrower's annual O&M budget for
the facility, or greater than $100,000.
Financial capability to repay loan means the borrower's ability to
repay the loan as determined by the Secretary. Factors determining a
borrower's financial capability may include, but are not limited to:
Expenses as a ratio to income, amount of current debts/liabilities,
projected revenues, including user fees or other dedicated revenue
sources available to repay the guaranteed loan, the ability of
Reclamation project beneficiaries to meet all operations, maintenance,
and rehabilitation costs of the subject facilities and previous record
of repaying obligations.
Improvement to Water Infrastructure means a valuable addition made
to property, or an enhancement of its condition, including
modernization, upgrades or other enhancements meant to conserve water,
increase water use efficiency, or enhance water management, and does
not include routine maintenance.
Joint Financing means a situation where two or more lenders (or any
combination of lenders and other non-Federal financial sources) make
separate, relatively contemporaneous loans or grants to supply the
funds required by one borrower.
Joint Powers Authority (JPA) means a regional agency that:
(1) Represents two or more local entities (e.g., Reclamation
repayment or water service contractors); and
(2) Exercises common powers as authorized by the State in which the
local entities operate (some States may refer to such regional agencies
by another name).
[[Page 58091]]
Lender means a non-Federal lending institution meeting the criteria
in Sec. 403.40 that has an agreement with Reclamation to participate
in the loan guarantee program. The lender requests a loan guarantee
from Reclamation and then works directly with the borrower to originate
and service the loan.
Lender's Agreement means the signed agreement between Reclamation
and the lender providing proof of the lender's eligibility to
participate in the loan guarantee program, and containing the lender's
responsibilities as defined in subpart D of this part. The Lender's
Agreement is a single document that is valid for two years, as
indicated in Sec. 403.38. Only one Lender's Agreement will be required
for each eligible lender.
Loan Guarantee means any guarantee, insurance, or other pledge by
Reclamation to pay all or part of the principal of and interest on a
loan or other debt obligation of a non-Federal borrower to a lender.
Loan Guarantee Closing Report means the Reclamation form prepared
at the time a Loan Note Guarantee Agreement is issued and upon payment
of guaranteed loan fees, or when the terms or conditions of the loan
guarantee change, such as the assumption or assignment of guaranteed
loans. This form must accompany all loan guarantee fee payments. The
lender delivers this form and applicable fee to Reclamation.
Loan Note Guarantee Agreement means a written agreement that, when
entered into by Reclamation, a borrower, and an eligible lender,
pursuant to the Act, establishes the obligation of Reclamation to
guarantee the payment of all or a portion of the principal and interest
on specified guaranteed obligations of a borrower to eligible lenders
or other Holders subject to the terms and conditions specified in the
Loan Guarantee Agreement.
Project means:
(1) A rural water supply project (as defined in section 102(9) of
Title I of Public Law 109-451);
(2) An extraordinary operation and maintenance activity for, or the
rehabilitation or replacement of, a facility--
(i) That is authorized by Federal reclamation law and constructed
by the United States under such law; or
(ii) In connection with which there is a repayment or water service
contract executed by the United States under Federal reclamation law;
or
(3) An improvement to water infrastructure directly associated with
a reclamation project that, based on a determination of the Secretary--
(i) Improves water management; and
(ii) Fulfills other Federal goals.
Project Costs means the expected financial obligations which may be
incurred for the development and support of the various features of an
eligible project, as specified in Sec. 403.50. The key elements of
estimating eligible project costs are detailed in existing Reclamation
policy. Project costs do not include costs for the items set forth in
Sec. 403.50(b).
Reclamation means the Bureau of Reclamation, also referred to in
this part as ``us'' and ``we.''
Reclamation Project means a geographically-defined system of
structures specifically authorized by Congress, such as the Central
Arizona Project or the Central Valley Project.
Rehabilitation and Replacement means the processes of renovating a
facility or system where performance is failing to meet the original
criteria and needs of the Reclamation Project. This process is
generally significant in terms of magnitude of work involved and
related costs and, thus, also may benefit from the use of the loan
guarantee program. Replacements are typically related to items with a
defined service life. Examples of this could include the replacement of
a dam gate or valve that has met or exceeded its expected service life,
replacements of a reach of canal lining, or other work beyond the
capability of the borrower to finance from annual O&M budgets or
reserve funds.
Report of Loss means the Reclamation form used by lenders when
reporting a loss on a Reclamation guaranteed loan.
Reserved Works means facilities owned, operated, and maintained by
Reclamation, O&M costs of which may be paid in part by authorized
Reclamation Project entities.
Routine Operation and Maintenance means recurring operation and
maintenance activities such as minor repairs and replacement of parts
and structural components, and other day-to-day activities needed to
preserve a facility so that it continues to provide acceptable services
and achieves its expected life. It excludes extraordinary operation and
maintenance, rehabilitation, and replacement.
Transferred Works means facilities for which the management,
funding (full or partial), and operation and maintenance has been
transferred to one or more of the Reclamation Project beneficiaries.
Reclamation still maintains ownership of the facilities.
Sec. 403.3 Are loan guarantees supported by the full faith and credit
of the United States?
Yes. The full faith and credit of the United States is pledged to
the payment of all guarantees issued under this regulation with respect
to principal and interest. Issuance of a Loan Note Guarantee Agreement
constitutes an obligation supported by the full faith and credit of the
United States and is not contestable except for fraud or
misrepresentation of which the lender has actual knowledge,
participates in, or condones. Some exceptions may apply in cases where
the lender does not perform reasonable and customary servicing of the
loan, as described in Sec. 403.60.
Sec. 403.4 Who is eligible for a loan guarantee?
To be eligible for a loan guarantee under this part, an entity must
be either:
(a) A State (including department, agency, or political subdivision
of a State); or
(b) A conservancy district, irrigation district, canal company,
water users association, Indian tribe, an agency created by interstate
compact or any other entity that has the capacity to contract with the
United States under Federal reclamation law (e.g., a rural water
association or a JPA).
Sec. 403.5 What can I finance under the program?
You can finance project costs as described in Sec. 403.50(a) for
any of the types of work listed in paragraphs (a), (b), or (c) of this
section.
(a) Construction of projects determined to be eligible under Title
I of Public Law 109-451, The Rural Water Supply Act of 2006.
(b) Extraordinary operation and maintenance for, or the
rehabilitation or replacement of, a facility that:
(1) Is authorized by Federal reclamation law and constructed by the
United States under that law; or
(2) Has in place a repayment or water service contract under
Federal reclamation law. In addition to facilities where Reclamation
holds title, this would include facilities constructed and operated by
the U.S. Army Corps of Engineers, where irrigation water users contract
with Reclamation for use of the water from the facilities and pay some
portion of the O&M costs associated with those facilities.
(c) Improvements to water infrastructure directly associated with a
Reclamation project. If you have existing facilities that are
physically connected to or receive water directly from a Reclamation
project, improvements to those facilities may qualify for financing
under the program. Decisions on which facilities qualify under this
section will be made on a case-by-case basis.
[[Page 58092]]
Sec. 403.6 How do I obtain a loan guarantee?
(a) After receiving appropriations for the loan guarantee program,
we will issue solicitations to invite the submission of Applications
for loan guarantees for eligible projects. We will issue a solicitation
before proceeding with other steps in the loan guarantee process,
including issuance of a loan guarantee. Each solicitation may include
programmatic, technical, financial and other factors we will use to
evaluate applications and such other information as we may deem
appropriate.
(b) To obtain a loan guarantee under this rule, a proposed project
must meet the eligibility criteria described in Sec. 403.5 as well as
any other criteria that may be identified in the solicitation.
(c) We recommend that you visit several qualified lenders to
discuss the planned work, qualifications for a guaranteed loan,
conditions or terms of a loan, etc. See Sec. 403.37 for descriptions
of eligible lending institutions. Once you determine which lending
institution to use, you will work directly ith the lender to secure its
approval of your loan request based on its own financial analysis.
(d) Following a lender's approval of your loan request, you and the
lender must prepare an application package to submit to us, as detailed
in Sec. 403.7, to request consideration for a loan guarantee. You and
the lender may meet with us at this point in the process to discuss the
requirements of the application package.
(e) When we receive your application, we will review it based on
the criteria in Sec. 403.10, and notify you and the lender whether we
require additional information or the application has been denied.
After completion of our review and evaluation, Reclamation may offer a
conditional commitment for guarantee.
(f) You and the lender complete and sign the Acceptance of
Conditions and return a copy to us. You will then continue to work with
the lender to meet the conditions set forth in the Conditional
Commitment for Guarantee.
(g) Once terms and conditions of the Conditional Commitment (such
as NEPA compliance; necessary local, State, tribal, or Federal permits;
and district election to approve indebtedness, if applicable), and any
other applicable statutory, regulatory, and budgetary requirements are
met, and the Secretary determines that the loan merits a guarantee,
Reclamation, you, and the lender will sign the Loan Note Guarantee
Agreement.
Sec. 403.7 What must be included in an application package?
An application package must contain the following:
(a) Application for Loan Guarantee on Form 7-2580;
(b) Proposed loan agreement between you and the lender;
(c) A report containing an analysis of the potential environmental
impacts of the project. The report should be pursuant to the National
Environmental Policy Act and in accordance with appropriate Reclamation
standards.
(d) Preliminary architectural and/or engineering report, including
financial feasibility analysis (as appropriate);
(e) Project cost estimates as described in Sec. 403.50;
(f) Appraisal reports for real property serving as collateral,
consistent with the Uniform Standards of Professional Appraisal
Practice, promulgated by the Appraisal Standards Board of the Appraisal
Foundation and conducted by a state licensed or certified appraiser;
(g) Credit reports;
(h) Pro-forma cashflows;
(i) A loan schedule and documentation outlining the terms and
conditions of the loan to be guaranteed;
(j) The lender's credit analysis which shall include an analysis
demonstrating that at the time of the application, there is reasonable
prospect that the Borrower will be able to repay the guaranteed
obligation (including interest) from user fees or other dedicated
revenue sources, as well as an analysis demonstrating that the borrower
has the ability to pay all operation, maintenance, and rehabilitation
costs of the project facilities;
(k) A full description of all security features (such as any
project or non-project assets pledged as collateral to the obligation)
that would ensure repayment;
(l) Proposed timeline for work accomplishment; and
(m) Any additional information required, as determined by
Reclamation, including other information relied upon by the lender in
approving the borrower's initial loan request.
Sec. 403.8 [Reserved]
Sec. 403.9 What are the criteria for program eligibility?
Section 403.4 defines who is eligible for a loan guarantee. In
addition to meeting the entity eligibility criteria, a proposal must:
(a) Meet acceptable engineering, financial, public health, and
environmental standards;
(b) Be for extraordinary repair, rehabilitation, replacement or
betterment to facilities owned by Reclamation, or for facilities which
are associated with a repayment or water service contract executed by
the United States under Federal Reclamation law;
(c) Be for improvements to water infrastructure directly associated
with a Reclamation project;
(d) Be prepared or reviewed by a certified professional engineer;
(e) Have been reviewed by a financial institution for financial
feasibility, and a letter of intent regarding the issuance of
sufficient loan financing accompanies the proposal;
(f) Be accompanied by appropriate documentation prepared pursuant
to the National Environmental Policy Act and in accordance with
appropriate Reclamation standards;
(g) Demonstrate approval, as appropriate, of any party necessary
for the borrower to enter into a Loan Note Guarantee Agreement;
(h) Demonstrate to the satisfaction of the Secretary the
creditworthiness of the project, including a determination by the
Secretary that any financing for the project has appropriate security
features to ensure repayment;
(i) Demonstrate to the satisfaction of the Secretary that the
borrower has the ability to repay the project financing from user fees
or other dedicated revenue sources;
(j) Demonstrate to the satisfaction of the Secretary that the
borrower has the ability to pay all operation, maintenance, and
rehabilitation costs of the project facilities;
(k) Describe the borrower's efforts to obtain alternative financing
for the proposed project;
(l) Demonstrate that the borrower's proposed activities will be
well managed, have clear deliverables, will be accomplished on schedule
and within budget; and
(m) Describe how these planned activities will ensure the continued
safe, dependable, and reliable delivery of authorized project benefits.
Sec. 403.10 How will Reclamation evaluate my application?
(a) In addition to the amount of funds available to use for loan
guarantees, we will consider many different factors in evaluating your
loan guarantee application and in determining whether to issue a
Conditional Commitment for Guarantee and ultimately a Loan Note
Guarantee Agreement. For projects described in Sec. Sec. 403.5(b) and
403.5(c), the factors include, but are not limited to, the information
provided pursuant to Sec. 403.7 above, as well as:
(1) Engineering need;
(2) Your historical diligence and effectiveness in performance of
O&M,
[[Page 58093]]
and demonstration of financial capability to meet routine O&M
expenditures;
(3) Efficiency opportunities;
(4) Environmental effects/impacts;
(5) Range of alternatives considered (including a comparison of
major rehabilitation or repair versus replacement of the affected
facilities, if replacement is an appropriate alternative)); and
(6) Your financial capability to repay the guaranteed loan,
assessed on the basis of:
(i) Outstanding debts and all other financial obligations;
(ii) Amount of loan, rates, and terms;
(iii) Past performance in repaying loans or other debts;
(iv) Collateral/equity as appropriate;
(v) Financial backing or support from local, State, or other non-
Federal entities; and
(vi) Availability of reliable revenue sources, such as user fees
and ad valorem taxes.
(b) While we do not expect to do so, we may waive certain criteria
consistent with Title II of Public Law 109-451 section 203(b) that we
determine to be duplicative or rendered unnecessary because of an
action already taken by the United States.
(c) For projects described in Sec. 403.5(a), a determination of
eligibility under Title I of Public Law 109-451 will establish
eligibility for participation in the loan guarantee program. Additional
eligibility criteria and program requirements for such projects will be
published in the future as supplements to this part.
(d) As a part of our evaluation of your loan application, we will
use any additional information that we deem appropriate to verify the
data included in your loan guarantee application in order to:
(1) Determine the eligibility of a project;
(2) Establish a priority ranking of all eligible projects; and
(3) Determine which projects we will offer a Conditional Commitment
for Guarantee.
(e) If your application fails to meet the requirements of paragraph
(a) of this section, we will notify you of the criteria we deem to be
deficient and may take one or more of the following actions:
(1) Request additional information to correct identified
deficiencies;
(2) Request one or more meetings with you to address deficiencies;
(3) Return the application and request that you address identified
deficiencies; or
(4) Eliminate your application from further review.
(f) You may modify your application to correct deficiencies
identified in paragraph (e) of this section and, in the case of
paragraph (e)(3) of this section, resubmit your application to us for
re-evaluation if allowed under the terms of the solicitation. We will
not complete our evaluation of an application until all identified
deficiencies are resolved and resubmission of the application does not
impose any obligation or requirement for us to offer a Conditional
Commitment for Guarantee or a Loan Note Guarantee Agreement.
(g) Any form of response or communication from us, or lack thereof,
regarding your loan guarantee application shall not impose any
obligation on us to issue a Conditional Commitment for Guarantee.
Sec. 403.11 What criteria will be used to prioritize loan requests?
Applicants will be evaluated against other applicants and greater
weight will be given to applicants with the greatest engineering need.
After meeting the program eligibility criteria provided in Sec. 403.9,
loan guarantee proposals will be prioritized based on the following
criteria. Applicants will be evaluated against other applicants and
greater weight will be given to applicants with the greatest
engineering need and any other factors that may be identified in the
solicitation, including those noted below.
(a) Engineering Need. (1) For category (B) and (C) projects, a
major factor in prioritization of eligible applicants will be the
extent to which engineering analysis demonstrates that the facilities
face existing or potential conditions that would severely impair their
performance (e.g., significant reduction of service delivery or
reliability). The analysis can be provided by the applicant, a
consultant to the applicant, or by Reclamation, in the case of
facilities operated and maintained by Reclamation for which the
applicant is required to share in the O&M costs. The analysis should
cite:
(i) The time frame over which the impairment could reasonably be
expected;
(ii) The consequences of impairment; and
(iii) Risk factors that could be mitigated if the project is
undertaken.
(2) For Category (B) projects, proposals should cite findings from
Reclamation's Review of Operation and Maintenance (RO&M) Program and
Facility Review reports as support for the maintenance or
rehabilitation need.
(b) History of Operations and Maintenance. For Category (B)
projects, the proposal will document the history of O&M activities by
the applicant, supported by Reclamation's RO&M and Facility Review
reports. An evaluation will be made as to the applicant's diligence in
operating and maintaining the assets entrusted to them by Reclamation.
For all other projects with existing history, evaluation will be made
based on information provided in the application and any other
available information sources.
(c) Efficiency Opportunities. Engineering analysis demonstrates
that there is a significant opportunity to substantially reduce future
routine O&M costs associated with the facility and/or conserve or more
efficiently manage the water that would be otherwise lost to seepage,
evaporation, or other factors which directly result from facility
deterioration due to age or use. The expected amount of O&M cost
reduction or water saved will be one of the prioritization
considerations.
(d) Financial Strength/Need/Feasibility. The overall financial
strength of the proposed project, including the borrower's capacity to
repay the loan and meet all other obligations (beyond demonstration to
the satisfaction of the Secretary of the capacity to repay the loan and
other financial eligibility requirements) will be considered in the
prioritization as well. The proposal will also demonstrate the portion
of the work to be funded by private sources, as well as any
contribution expected from any non-Federal governmental agency. The
proposal must demonstrate that it is infeasible for the applicant to
finance the project using its current resources (e.g., reserve funds,
tax base, etc.).
(e) Environmental Effects. The potential for the proposed project
to further reduce existing negative environmental effects or to provide
environmental benefits.
(f) Alternatives Considered. The proposal will document
alternatives to the anticipated proposed work, including the ``no
action'' alternative, the estimated costs for such alternatives, and
reasons those alternatives were not selected. The extent to which all
viable alternatives have been considered will also be taken into
account in the prioritization process.
(g) Best Management Practices. The proposal demonstrates that the
borrower's proposed activities have clear deliverables, can reasonably
be expected to be accomplished on schedule, within budget, and have
tangible performance targets.
[[Page 58094]]
Sec. Sec. 403.12-403.15 [Reserved]
Sec. 403.16 What permits must I obtain?
Environmental compliance processes and other permits are required
by law, and your project schedule and budget must account for this
activity. You should consult with your local Reclamation office
regarding details on the environmental compliance and permitting
process. The following provides examples of permits and approvals often
required:
(a) Federal--NEPA, Endangered Species Act, Fish and Wildlife
Coordination Act, National Historic Preservation Act compliance, and
Clean Water Act permits (401, 402, 404 permits);
(b) State--rights-of-way, water use, mineral use permits, and State
environmental compliance;
(c) Tribal--rights-of-way, water use, cultural resources, mineral
use permits, etc.; and
(d) Local/private--rights-of-way, water use, mineral use permits,
and road use permits.
Sec. 403.17 Where can I get more information about loan guarantees?
You may contact your nearest Reclamation office for more
information or assistance. Contact information may be found at http://www.usbr.gov.
Sec. 403.18 Does this rule contain an information collection that
requires approval by OMB?
Yes. It does contain an information collection that is approved by
OMB, under Control Number 1006-XXXX. An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless it displays a currently valid OMB control number.
403.19 [Reserved]
Subpart B--Borrower Roles and Responsibilities
Sec. 403.20 As a borrower, what is my role in the loan guarantee
program?
As the borrower, you are the initiator of the loan guarantee
process. You must do all of the following:
(a) Apply for participation in the loan guarantee program;
(b) Work with the lender for approval and conditions/terms of the
loan;
(c) Work with both the lender and us throughout the process and
life of the loan;
(d) Be financially responsible to repay the money borrowed under
this program;
(e) Be responsible for obtaining all necessary approvals, permits,
or other conditions necessary for the project, and ensuring all
contractual and other requirements related to the project, the
facility, and the loan guarantee are met; and
(f) Be responsible for ensuring all required documents are
completed and submitted as required in order to complete your project.
Sec. 403.21 What is my role in preparation of environmental
compliance documents?
(a) NEPA and other documents may be prepared by Reclamation, by
you, or by a consultant employed by you and approved by Reclamation.
You will work with your local Reclamation office to decide who will
prepare these documents. Regardless of who prepares the NEPA documents,
we must independently evaluate them for sufficiency before final
approval. We will work closely with you and any consultant involved.
(b) If the NEPA document is an Environmental Impact Statement,
Reclamation must select, alone or in cooperation with you, any NEPA
contractor before they begin work on the document.
(c) We will allocate all costs associated with NEPA and other forms
of required environmental compliance among the authorized purposes
benefiting from the project for which the loan guarantee is being
sought, and you will be responsible for your allocated share of those
costs.
Sec. 403.22 What is my role in preparing plans and specifications for
the project?
If your project meets the descriptions in Sec. Sec. 403.5(b) and
403.5(c), you may request that we prepare the plans and specifications,
you may hire a consultant to prepare them, or you may prepare them
yourself. Regardless of who prepares the documents, we must review and
approve them. Reclamation must be consulted on any subsequent changes
to determine if further approval is required. You must pay us for all
appropriate allocated costs incurred in this review and approval. If
you ask us to prepare these documents, you must also pay our costs for
the preparation.
Sec. Sec. 403.23-403.24 [Reserved]
Sec. 403.25 What are the application and contractual requirements if
I apply for a guaranteed loan as a Joint Powers Authority (JPA)?
If you are a JPA, you must meet all of the requirements of this
section.
(a) Your application must:
(1) Identify each of the participating local water entities
responsible to your JPA for revenues to repay the guaranteed loan;
(2) Identify each participating entity's authority to act on behalf
of its water users or other constituents relative to the proposed
obligation; and
(3) Identify the authorities through which the participating
entities will assess and collect revenues necessary to repay through
the JPA its share of the proposed loan obligation.
(b) You must supply required financial information for each local
entity.
(c) You must determine the allocation of the loan obligation among
the various entities of your JPA.
(d) The participating entities must formally acknowledge their
respective portions of the loan obligation and must sign all applicable
loan agreements.
Sec. Sec. 403.26-403.28 [Reserved]
Subpart C--Reclamation Roles and Responsibilities
Sec. 403.29 What is Reclamation's role in the loan guarantee program?
Reclamation has general oversight and administers the loan
guarantee program. In these capacities we:
(a) Issue solicitations for loan guarantee applications, as
described in Sec. 403.6(a);
(b) Work with you and the lender when you submit your request for a
loan guarantee;
(c) Review all applications received and determine who will receive
loan guarantees and for how much;
(d) Ensure appropriate completion of the project in accordance with
plans and specifications; and
(e) Manage and ensure proper oversight of the overall loan
guarantee program.
Sec. 403.30 What information will Reclamation maintain on the lender?
We will maintain an operational file on each lender. This file will
contain, among other things:
(a) Information on the guaranteed loans originated and serviced by
the lender;
(b) Any correspondence between us and the lender;
(c) Any Conditional Commitments for Guarantee;
(d) The Lender's Agreement;
(e) Any Loan Note Guarantee Agreements issued to the lender; and
(f) Any Loan Guarantee Closing Report prepared for each loan.
Sec. 403.31 How much of the loan will Reclamation guarantee?
We will guarantee up to 80 percent of the principal and up to 90
days accrued interest from the first missed payment for eligible
losses, as set forth in Subpart F and in the Lender's Agreement. This
guarantee is backed by the full faith and
[[Page 58095]]
credit of the United States, provided the lender does not demonstrate
negligence in loan origination and servicing.
Sec. 403.32 What is Reclamation's role in preparation of NEPA and
other environmental compliance documents?
We will determine the appropriate level of NEPA documentation for
each project. The NEPA documentation may be prepared by Reclamation, by
you, or by a consultant employed by you and approved by us. We will
work with you to decide who can best prepare the documentation.
Regardless of who prepares the NEPA documents, we must independently
evaluate them for sufficiency before final approval.
Sec. 403.33 Can Reclamation make exceptions to requirements in this
rule?
Yes. The Secretary may waive any of the eligibility criteria that
he/she determines to be duplicative or rendered unnecessary because of
an action already taken by the United States. Waivers will only be
considered to the extent that the criteria have been demonstrated to be
satisfied.
Sec. Sec. 403.34-403.36 [Reserved]
Subpart D--Lender Criteria and Responsibilities
Sec. 403.37 Which lenders are eligible to participate in the program?
(a) An eligible lender is:
(1) Any non-Federal qualified institutional buyer (as defined in 17
CFR 230.144A(a), or any successor regulation, known as Rule 144A(a) of
the Securities and Exchange Commission); or
(2) Any clean renewable energy bond lender (as defined in section
54(j)(2) of the Internal Revenue Code of 1986 (as in effect on the date
of enactment of Public Law 109-451)).
(b) [Reserved]
Sec. 403.38 What other requirements must a lender meet to participate
in the program?
A lender wishing to participate in the loan guarantee program must
submit proof to us that they are an eligible lender under Sec. 403.37
and that they meet the requirements of this section prior to submitting
an application package as described in Sec. 403.7. Once a lender has
executed a Lender's Agreement with us, they will be considered an
approved lender for a period of two years provided that there is no
adverse event that would affect the status of the lender, such as those
listed in Sec. 403.39(c), and need not resubmit proof of eligibility
for each subsequent guaranteed loan application. At the end of this
two-year period or upon information that the lender may no longer meet
current eligibility criteria, we will re-evaluate the lender's
eligibility under the program.
(a) If the lender has losses or deficiencies in processing and
servicing any federally guaranteed loans, they must not be above a
level that indicates an inability to properly process and service a
loan guaranteed by Reclamation. We may consult with other Federal
agencies to determine if previous problems, as evidenced in monitoring
reports, excessive loss claims, or denial of loss claims, should be
considered in this determination.
(b) The lender must be subject to credit examination and
supervision by an acceptable State or Federal regulatory agency listed
below. Examination will normally include a review of the lender's asset
quality, management practices, financial condition, and compliance with
applicable laws and regulations. Regulating agencies may include:
(1) Federal Deposit Insurance Corporation (FDIC);
(2) Office of Comptroller of the Currency;
(3) Office of Thrift Supervision;
(4) Federal Reserve Bank;
(5) Farm Credit Administration (FCA);
(6) National Credit Union Administration; and
(7) State banking Commissions.
(c) The lender and its principal officers and staff must
demonstrate capability to fulfill guaranteed loan servicing
responsibilities.
(d) If the lender is regulated only by a State regulatory agency,
and not a Federal regulatory agency, then it must also meet the
following financial and capital requirements:
(1) Have a record of successfully making at least three commercial
loans annually for at least the most recent 3 years, with delinquent
loans not exceeding 2 percent of loans outstanding and historic losses
not exceeding 1 percent of dollars loaned;
(2) Have tangible balance sheet equity of at least eight percent of
tangible assets and sufficient funds available to disburse the
guaranteed loans it proposes to approve within the first 6 months of
being approved as a guaranteed lender; and
(3) The lender, its officers, or agents must not be debarred or
suspended from participation in government contracts or programs and
must not be delinquent on a Federal Government debt.
Sec. 403.39 What is the lender's role in the program?
The lender must evaluate and administer the guaranteed loans as
required by paragraph (a) of this section and notify us of changes in
status, as required by paragraph (b) of this section.
(a) The lender is responsible for all of the following:
(1) Determining whether the loan guarantee applicants meet the
general eligibility requirements for a loan guarantee, from its
perspective;
(2) Performing underwriting, due diligence, and evaluating the
creditworthiness of the project consistent with the lender's standard
lending policies and considering all relevant information;
(3) Determining if the proposed borrower is delinquent on any debt
(if the borrower is delinquent on any debt, processing of the
application may continue only with our written approval);
(4) Disclosing to Reclamation any business or ownership
relationships between principals of the lender and borrower where the
lender's officers, stockholders, directors, or partners, or the
borrower, its officers, stockholders, directors, or partners own, or
have management responsibilities in each other (this does not
necessarily preclude such relationships);
(5) Originating and servicing all Reclamation guaranteed loans in
its portfolio in accordance with the Lender's Agreement, including all
of the requirements of paragraph (b) of this section;
(6) Assessing late charges of any kind including default charges
and default interest in accordance with the terms and conditions
approved by Reclamation under the Loan Note Guarantee Agreement (Note:
None of these will be covered by the guarantee);
(7) Notifying us of any actions taken to cure a guaranteed loan
experiencing repayment difficulties as discussed in Sec. 403.63;
(8) Allowing us to inspect and make copies of any of the records of
the lender pertaining to the guaranteed loans. Such inspection and
copying may be made during regular office hours of the lender or at any
other time the lender and Reclamation agree upon;
(9) Obtaining written approval from us before making any new loans
to, or additional expenditures on behalf of, the borrower, which
approval is subject to our discretion;
(10) Protecting the guaranteed loan debt and any collateral
securing it in bankruptcy proceedings;
(11) Advising Reclamation promptly and in writing of any changes or
conditions of the loan that may result in delinquency, inability to
pay, or default by the borrower; and
(12) Advising Reclamation promptly and in writing of any financial
problems
[[Page 58096]]
or circumstances that the non-Federal entity may have that would cause
them to be delinquent in repayment of an existing obligation.
(b) For purposes of paragraph (a) (4) of this section, originating
and servicing guaranteed loans includes all of the following:
(1) Servicing the entire loan in accordance with the Lender's
Agreement. The un-guaranteed portion of the loan will not be paid first
nor given any preference or priority over the guaranteed portion of the
loan;
(2) Taking all servicing actions that a prudent lender would
perform in servicing a portfolio of loans that are not guaranteed,
including, but not limited to, collecting payments, obtaining
compliance with the covenants and provisions in the note, loan
agreement, security instrument, or any supplemental agreements,
verifying the payment of taxes and insurance premiums as appropriate,
maintaining necessary liens on any collateral, and notifying
Reclamation of any violation of the loan agreement with the borrower
within 30 days of such violation;
(3) Obtaining financial statements required by the Lender's
Agreement, analyzing these statements, and providing the statements,
along with the lender's analysis of the financial conditions of the
borrower and supporting documentation, to us within 120 days of the end
of the borrowers fiscal year;
(4) When applicable, requiring audits of the borrower in accordance
with Office of Management and Budget circulars, available from the
Reclamation contacts listed in Sec. 403.17;
(5) Reporting monthly data on a quarterly basis to Reclamation the
outstanding principal and interest balance on each guaranteed loan in
its portfolio, and other information as specified in the Lender's
Agreement; and
(6) Servicing delinquent loans in accordance with the Lender's
Agreement and reasonable and prudent lending standards, to include
monthly reporting to us on the status of delinquent loans; and
(7) Inspecting any collateral as often as necessary to ensure the
proper maintenance of its value.
(c) The lender must immediately notify us in writing if it:
(1) Becomes insolvent;
(2) Has filed for any type of bankruptcy protection, has been
forced into involuntary bankruptcy, or has requested an assignment for
the benefit of creditors;
(3) Has taken any action to cease operations, or to discontinue
servicing its portfolio guaranteed by Reclamation;
(4) Intends to sell the guaranteed loan to another entity;
(5) Changes its name, location, address, tax identification number,
or corporate structure;
(6) Is or has been debarred, suspended, or sanctioned in connection
with its participation in any Federal loan guarantee program; or is or
has been debarred, suspended, or sanctioned by any Federal or State
licensing or certification authority.
Sec. 403.40 Can the lender cancel or modify a Conditional Commitment
for Guarantee, or transfer it to another lender?
(a) Once the Conditional Commitment for Guarantee is issued and
accepted, no modifications may be made as to the scope and overall
concept of the project or the project purpose, use of the proceeds, or
other significant terms and conditions.
(b) Before issuance of the Loan Note Guarantee Agreement,
Reclamation may approve the transfer of the Conditional Commitment for
Guarantee to a new eligible lender, provided that:
(1) The former lender states in writing why it does not wish to
continue to be the lender for the project;
(2) No substantive changes in ownership or control of the borrower
have occurred;
(3) No substantive changes in the borrower's written plan, scope of
work, or changes in the purpose or intent of the project have occurred;
(4) No substantive changes in the loan agreement with the borrower
or the Conditional Commitment for Guarantee are required;
(5) The new lender is acceptable to Reclamation, and has a current
Lender's Agreement, or will have a Lender's Agreement in place prior to
the sale; and
(6) Such a transfer meets all other statutory, regulatory, and
other requirements.
Sec. 403.41 Can a lender sell or transfer the Loan Note Guarantee
Agreement to another lender?
A lender can sell or transfer a guaranteed loan to another lender
if all of the requirements of this section are met.
(a) We must approve the sale or transfer in writing by executing a
modification of the guarantee to identify the new lender and the amount
of debt at the time of the substitution. Any change must meet all
applicable statutory, regulatory, and budgetary requirements for
approval.
(b) The new lender must agree in writing to:
(1) Assume all servicing and other responsibilities of the original
lender and to acquire both the guaranteed and non-guaranteed portions
of the loan;
(2) Execute a Lender's Agreement if one is not in effect; and
(3) Give the borrower written notice of the substitution.
(c) The original lender must obtain written concurrence from the
borrower if the rate or terms are changed (and such changes have been
approved).
(d) The original lender must assign its promissory note, lien
instruments, loan agreements, and other documents to the new lender.
Sec. 403.42 Can a lender sell the debt obligation in a secondary
market?
A lender can sell the debt obligation in a secondary market (for
example, as a participation). However, the lender must:
(a) Notify us of the sale, and the associated holder information;
(b) Sell both the guaranteed and the non-guaranteed portions of the
loan together proportionally; and
(c) Continue to service the loan.
Sec. 403.43 What fees and costs is the lender responsible for?
The lender is responsible for:
(a) Paying a loan guarantee fee of 1 percent to Reclamation; and
(b) At least 20 percent of the outstanding loan amount, if the
borrower defaults on the loan.
(c) The lender's own costs associated with the loan guarantee
program, including underwriting, servicing, and liquidation of a loan,
including any legal or other costs.
Sec. 403.44 Can Reclamation guarantee bonds sold to finance eligible
projects?
No. Reclamation cannot guarantee bonds. Bond issuers do not qualify
as eligible lenders under Sec. 403.37.
Sec. Sec. 403.45-403.46 [Reserved]
Subpart E--Guaranteed Loan Terms and Details
Sec. 403.47 What conditions must be met before a Loan Note Guarantee
Agreement is issued?
The Loan Note Guarantee Agreement may be issued only after the
following have occurred:
(a) All terms of the Conditional Commitment for Guarantee have been
met, to the satisfaction of Reclamation;
(b) No changes have been made in the lender's loan conditions and
requirements since the issuance of the Conditional Commitment for
Guarantee except those approved by Reclamation in writing;
[[Page 58097]]
(c) The lender certifies that there have been no substantive
adverse changes in the borrower's financial condition or any other
adverse change in the borrower during the period of time from the
issuance of the Conditional Commitment for Guarantee to issuance of the
Loan Note Guarantee Agreement;
(d) Land access and all necessary permits are obtained;
(e) Environmental compliance has been completed and approved by
Reclamation;
(f) Federal funds are available;
(g) Reclamation has approved final plans and specifications;
(h) All applicable security, safety, and health issues are
resolved;
(i) The lender has executed the Lender's Agreement with us, paid
the appropriate guarantee fee, and a Loan Guarantee Closing Report has
been completed;
(j) All other applicable statutory, regulatory, and budgetary
requirements have been met;
(k) Reclamation, in consultation with other Federal agencies
determines that the project is consistent with all applicable Federal
and United States Treasury policies and is in the best interest of the
Federal government; and
(l) The Secretary has approved the loan for a Loan Note Guarantee
Agreement.
Sec. 403.48 What is the maximum term I can obtain on a guaranteed
loan?
A loan guarantee must provide for complete amortization of the loan
within the useful life of the project, but not more than 40 years.
Lenders may offer shorter terms.
Sec. 403.49 Is there a limit on the size of a guaranteed loan?
Public Law 109-451 limits the size of the loan to 90 percent of
eligible project costs. Reclamation would only guarantee up to 80% of
that total loan amount.
Sec. 403.50 What project costs are eligible to be covered by my
guaranteed loan?
Before issuing a Loan Note Guarantee Agreement, we will determine
the adequacy and appropriateness of estimated Project Costs for the
project that is the subject of the agreement. In order for us to make
that determination, the application must include an estimate of project
costs that complies with applicable Reclamation policy. Among other
things, you must calculate the sum of necessary, reasonable and
customary costs that you have paid and expect to pay, which are
directly related to the project, including costs for escalation and
contingencies, to estimate the total Project Costs. All estimated costs
must be clearly described and documented in your application for a loan
guarantee.
(a) Project Costs may include, but are not limited to:
(1) Costs of acquisition, lease, or rental of real property,
including engineering fees, surveys, title insurance, recording fees,
and legal fees incurred in connection with land acquisition, lease or
rental, site improvements, site restoration, access roads, and fencing;
(2) Costs of engineering, architectural, legal and bond fees, and
insurance paid in connection with rehabilitating or replacing the
facility; including materials, labor, services, travel and
transportation for facility design, construction, and startup;
(3) Costs of equipment purchases;
(4) Costs to provide equipment, facilities, and services related to
safety and environmental protection;
(5) Financial and legal services costs, including other
professional services and fees necessary to obtain required licenses
and permits and to prepare environmental reports and data;
(6) Costs of necessary and appropriate insurance and bonds of all
types;
(7) Contract costs and non-contract costs, including appropriate
contingencies, allowances for procurement strategies, and cost
escalation estimates;
(8) Capitalized interest necessary to meet market requirements,
reasonably required reserve funds and other carrying costs during
construction; and
(9) Other necessary and reasonable costs.
(b) Project Costs do not include:
(1) Fees and commissions charged to borrower, including finder's
fees, for obtaining Federal or other funds;
(2) Parent corporation or other affiliated entity's general and
administrative expenses, and non-project-related parent corporation or
affiliated entity assessments, including organizational expenses;
(3) Costs that are excessive or are not directly required to carry
out the project, as determined by us, including but not limited to the
cost of hedging instruments; and
(4) Operating costs.
Sec. 403.51 What if my project cost exceeds the estimated loan
amount?
If a project satisfies the criteria in Sec. Sec. 403.5(b) or
403.5(c), and costs exceed the estimated, then:
(a) If your project cost estimate increases after we issue a
Conditional Commitment for Guarantee, but before we enter into the Loan
Note Guarantee Agreement, you will be required to notify us of the
increase and justify the increase to us. We will then determine how
such changes would affect any applicable statutory, regulatory, and
budgetary requirements, and whether to re-evaluate the revised project
to receive a loan guarantee, or reject your revised application. If we
determine that we can re-evaluate your project, we may require you to
make arrangements for additional funds or financing which are agreeable
to us and the lender.
(b) If your actual project costs exceed the amount specified in the
Loan Note Guarantee Agreement, you will notify us and we will consult
with you regarding such cost increases to determine what course of
action to take, including requiring you to obtain additional funds to
finish the project in a manner satisfactory to us and the lender.
(c) Any additional funding or financing must be consistent with
Public Law 109-451, all requirements of this part, and any other
statutory, regulatory, or budgetary requirements necessary for
Reclamation approval.
Sec. 403.52 What interest rates and charges apply to my guaranteed
loan?
(a) Your loan will bear interest at a rate or rates negotiated
between you and the lender. They must be fixed rates. Interest rates
will be those rates customarily charged borrowers in similar
circumstances in the ordinary course of business and are subject to our
review and approval. We will determine if the rate is reasonable after
consultation with the Treasury Department, taking into account the
range of interest rates prevailing in the private sector for similar
obligations of comparable risk guaranteed by the Federal government.
(b) Any change in the interest rate between the date of issuance of
the Conditional Commitment for Guarantee and before the issuance of the
Loan Note Guarantee Agreement must be approved by us.
Sec. 403.53 Can I prepay or refinance a guaranteed loan?
You must negotiate any prepayment or refinancing terms on a loan
guarantee with the lender, subject to our consent. All applicable
statutory, regulatory, and budgetary requirements must be met for
Reclamation consent.
Sec. 403.54 When can an entity begin actual ``on the ground'' work on
the project to be financed?
(a) An entity can begin actual work on the facilities or components
upon issuance of the Loan Note Guarantee Agreement.
(b) Any work done by a water user entity more than 90 days before a
Loan
[[Page 58098]]
Note Guarantee Agreement is issued may not be included in the eligible
project costs. In addition, any work initiated by a water user entity
90 or fewer days prior to our issuing a Loan Note Guarantee Agreement
may or may not be included in the eligible project costs and would be
done at the risk of not receiving the loan guarantee, even though such
work may have been approved by us and included in the Conditional
Commitment for Guarantee.
Sec. 403.55 [Reserved]
Sec. 403.56 Can the repayment of a guaranteed loan be subordinated to
any other financing?
No. We will only guarantee a loan under this part subject to the
condition that the obligation is not subordinate to other financing. In
addition:
(a) For projects without pledged collateral, the loan must be
superior to any other financing for the project (as approved by
Reclamation) and on a position of parity with regard to other non-
collateralized obligations of the borrower; i.e., in the event of a
default, all non-secured lenders are affected on a proportionate basis.
(b) For all other eligible projects, the loan must be fully secured
through project facilities pledged as collateral for the loan and there
shall be no other liens on such collateral. Consistent with the
requirements of the Act, the rights of the Secretary, with respect to
any property acquired pursuant to a loan guarantee or related
agreement, shall be superior to the rights of any other person with
respect to the property.
(c) Where joint financing of a project occurs, the loan for which a
guarantee is sought from Reclamation must have at least a parity
position with the other lender(s), such that in the event of default,
each lender will be affected in proportion to the share of financing it
provides.
(d) The non-guaranteed portion of the loan will not be paid first
nor given any preference or priority over the guaranteed portion.
Sec. 403.57 Under what conditions would the United States not pay the
guaranteed portion of a loan?
(a) The Loan Note Guarantee Agreement will not be enforceable by
the lender to the extent that any loss is a result of fraud, violation
of usury laws, negligent servicing, or failure to obtain any security
designated in the Lender's Agreement, regardless of when Reclamation
acquires knowledge of any of the foregoing.
(b) For purposes of this provision, negligent servicing is defined
as the failure to perform those services which a reasonably prudent
lender would perform in servicing its own portfolio of loans that are
not guaranteed. The term includes not only the concept of a failure to
act, but also not acting in a reasonably timely manner, or acting
significantly contrary to the manner in which a reasonable and prudent
lender would act up to the time of loan maturity, or until a final loss
is paid.
(c) Any losses occasioned will not be enforceable by the lender to
the extent that loan funds are used for purposes other than those
specifically approved by Reclamation in the Conditional Commitment for
Guarantee and Loan Note Guarantee Agreement. Reclamation will review
all loss claims, and claims may be denied, for example, in cases where
the lender does not perform reasonable and customary servicing of the
loan or claims include amounts not covered under the terms of the Loan
Note Guarantee Agreement.
Sec. 403.58 Will the requirements of the Reclamation Reform Act of
1982 apply?
No. The loan to be guaranteed is between the borrower and a private
lending institution and therefore does not meet the definition of a
contract as provided in Section 202(1) of the Reclamation Reform Act of
1982.
Sec. Sec. 403.59-403.62 [Reserved]
Subpart F--Default Actions and Termination.
Sec. 403.63 What options do I have if I have problems repaying the
guaranteed loan?
If you have problems paying your loan, contact Reclamation and your
lender for consideration of possible options.
Sec. 403.64 How can Reclamation help me if I can't resolve repayment
problems with my lender?
If you cannot resolve repayment problems with your lender,
Reclamation may, before default, enter into an agreement with your
lender to pay the principal and interest payment you currently owe the
lender. Although we do not anticipate having sufficient funds or
justification to exercise this option, we may consider this option if
all of the following conditions are met:
(a) The non-Federal borrower is unable to meet the payment and is
not in default;
(b) We determine that it is in the public interest that you be
permitted to continue your project, and that the probable net benefit
to the Federal Government in making such payment on your behalf is
greater than that which would result if your guaranteed loan defaulted;
(c) We have sufficient funds specifically appropriated and
available for this purpose;
(d) The payment authorized is not greater than the amount of
principal and interest that you are obligated to pay under the terms of
the Loan Note Guarantee Agreement;
(e) You agree to execute all written agreements required by us for
such purpose and reimburse us for the payment we make on terms and
conditions satisfactory to us; and
(f) You will, and are financially able to, continue to make the
scheduled payments on the remaining portion of the principal and
interest due and on other debt obligations of the project.
Sec. 403.65 What happens if I still can't make my payments after
working with the lender and Reclamation?
If you cannot make payments after working with the lender and with
Reclamation under Sec. 403.63, then the lender may start default
proceedings.
Sec. 403.66 What are the actions and timelines associated with
default proceedings?
The lender will notify us when your loan payment is 30 days past
due. If the payment becomes 60 days past due, the lender will meet with
you and us to discuss default proceedings and potential resolution of
the problem. The timeframe for default proceedings are shown in the
following table:
------------------------------------------------------------------------
Timeframe (days from pmt due date)
-----------------------------------
Action in the default process Collateral No collateral
pledged pledged
------------------------------------------------------------------------
Lender notifies Reclamation that 30 30
loan is past due...................
Lender meets with Reclamation and 60 60
borrower to discuss default
proceedings and potential
resolution of the problem..........
Reclamation, Borrower, and lender 75 75
seek possible cures................
[[Page 58099]]
Reclamation and lender determine 90 90
whether a cure is possible. If no
cure can be found, the loan is in
default and any collateral pledged
for the loan becomes eligible for
liquidation........................
Lender submits a proposed method of 120 N/A
liquidation in writing.............
Reclamation informs lender if 150 N/A
liquidation plan is approved.......
Lender files an estimated loss claim 180 N/A
if liquidation will exceed 90 days.
Lender files final Report of Loss... 210 120
Reclamation makes loss payment...... 270 180
------------------------------------------------------------------------
Sec. 403.67 What is the process for liquidation of pledged
collateral?
(a) Any of the following factors may lead to a decision to
liquidate:
(1) The loan has been delinquent 90 days;
(2) Delaying liquidation will jeopardize recovery of the loan
collateral; or
(3) Borrower or lender has been uncooperative in resolving the
default;
(b) The lender must, within 30 days after a decision to liquidate,
submit to Reclamation in writing a proposed method of liquidation.
Reclamation will not make any payments for estimated or actual losses
prior to final Report of Loss.
(c) Within 30 days after receiving the liquidation plan, we will
inform the lender in writing whether we concur.
(d) The lender will discontinue interest accrual at the point of
default, or 90 days after the first payment was missed, whichever is
earlier.
(e) When the lender conducts the liquidation, it must account for
funds during the period of liquidation and will provide us with reports
at least quarterly on the progress of the liquidation. Only expenses
authorized by Chapter 9 plans or Chapter 11 reorganizations, or
Chapters 11 or 7 liquidations (United States Bankruptcy Code) may be
deducted from collateral proceeds, if any.
Sec. 403.68 What is the timeline for filing a Final Report of Loss?
Within 30 days after liquidation of all collateral, the lender must
prepare a final Report of Loss and submit it to us. We will not
guarantee interest beyond the point of borrower default. We will pay
the approved loss payment within 60 days after reviewing the final
Report of Loss and accounting of the collateral.
Sec. 403.69 [Reserved]
Sec. 403.70 What interest does the lender have in the guaranteed loan
after Reclamation makes a loss payment?
When we receive a final Report of Loss and pay the loss claim, we
are immediately subrogated to the lender in all rights with respect to
the guaranteed loan. The lender must sign and deliver to Reclamation an
assignment of any rights it may have had with respect to the guaranteed
loan.
Sec. 403.71 What will Reclamation do if a borrower defaults?
If a borrower defaults, we are required to notify the Attorney
General. The Attorney General will take appropriate action to recover
the unpaid principal and interest due from assets of the defaulting
non-Federal borrower associated with the obligation, or any other
collateral pledged to secure the obligation.
Sec. 403.72 When does the Loan Note Guarantee Agreement terminate?
A Loan Note Guarantee Agreement under this part will terminate
automatically upon:
(a) Full Repayment of the guaranteed loan;
(b) Full Payment of any loss obligation or negotiated loss
settlement as described in the Lender's Agreement; or
(c) Written request from the lender to Reclamation, upon return of
the Loan Note Guarantee Agreement to Reclamation.
Sec. 403.73 What happens if the non-Federal party breaches the
existing Loan Note Guarantee Agreement?
The Federal Government reserves the right to prosecute both the
borrower and the lender to the fullest extent possible under existing
laws until full recompense has been made and the conditions of the Loan
Note Guarantee Agreement have been fulfilled. In addition, if a Loan
Note Guarantee Agreement is breached, the Borrower will no longer be
eligible to receive a Federally-guaranteed loan for any of its future
activities or projects, and may not be eligible for other Federal
assistance. Furthermore, any lender in breach of a Loan Note Guarantee
Agreement will be responsible for paying any additional fees as
determined necessary to the Federal Government and will not be allowed
to hold a Federal Government note until the United States Treasury has
been paid in full.
[FR Doc. E8-23444 Filed 10-3-08; 8:45 am]
BILLING CODE 4310-MN-P