Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance Program

DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Parts 4279 and 4287

RIN 0570-AA73

Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance Program

AGENCY:

Rural Business-Cooperative Service and Rural Utilities Service, USDA.

ACTION:

Interim final rule.

SUMMARY:

The Rural Business-Cooperative Service (Agency) is publishing this interim final rule for the Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance Program (the Program), formerly the Biorefinery Assistance Program, incorporating changes required in the Agricultural Act of 2014 (2014 Farm Bill) and addressing comments received on the interim final rule published on February 14, 2011 (76 FR 8404). This interim final rule establishes provisions for the loan guarantees available for Biorefineries to support the production of Advanced Biofuels and Renewable Chemicals and for Biobased Product Manufacturing facilities.

DATES:

This interim rule is effective August 24, 2015. Comments on the rule and the information collection under the Paperwork Reduction Act of 1995 must be received on or before August 24, 2015.

ADDRESSES:

Submit your comments on this rule by any of the following methods:

• Federal eRulemaking Portal:

http://www.regulations.gov

. Follow the instructions for submitting comments.

• Mail: Submit written comments via the U.S. Postal Service to the Branch Chief, Regulations and Paperwork Management Branch, U.S. Department of Agriculture, STOP 0742, 1400 Independence Avenue SW., Washington, DC 20250-0742.

• Hand Delivery/Courier: Submit written comments via Federal Express Mail, or other courier service requiring a street address, to the Branch Chief, Regulations and Paperwork Management Branch, U.S. Department of Agriculture, 300 7th Street SW., 7th Floor, Washington, DC 20024.

All written comments will be available for public inspection during regular work hours at the 300 7th Street SW., 7th Floor address listed above.

FOR FURTHER INFORMATION CONTACT:

Todd Hubbell, Energy Branch, Rural Business-Cooperative Service, U.S. Department of Agriculture, 1400 Independence Avenue SW., Stop 3225, Washington, DC 20250-3201; telephone (202) 720-0410.

SUPPLEMENTARY INFORMATION:

I. Executive Summary

The Food, Conversation, and Energy Act of 2008 (Pub. L. 110-246), otherwise known as the 2008 Farm Bill, established the Biorefinery Assistance Program (the Program) under Title IX, Section 9003, for making loan guarantees to fund the development, construction, and Retrofitting of Commercial-Scale Biorefineries using Eligible Technology. The 2008 Farm Bill defined Eligible Technologies as: Technology that is being adopted in a viable Commercial-Scale operation of a Biorefinery that produces an Advanced Biofuel; and technology that has been demonstrated to have technical and economic potential for commercial application in a Biorefinery that produces an Advanced Biofuel.

The Program's authority is continued in the Agricultural Act of 2014 (2014 Farm Bill) (Pub. L. 113-79), with several specific changes: (1) Renames the Program as the Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance; (2) Revises the purpose statement for the Program to include Renewable Chemicals and Biobased Product Manufacturing; (3) Expands the Program to include Biobased Product Manufacturing facilities; (4) Adds definitions for “Renewable Chemicals” and “Biobased Product Manufacturing”; and (5) Ensures diversity in the types of Projects approved.

Eligible applicants for the Program are as follows: Individuals; entities; Indian Tribes; units of State or Local Government; corporations; Farm Cooperatives; Farmer Cooperative Organizations; associations of Agricultural Producers; National Laboratories; Institutions of Higher Education; rural electric cooperatives; public power entities; and consortia of any of the foregoing entities.

The 2014 Farm Bill provides the Program with a total budget authority of $200 million in mandatory funding over three years, with discretionary funding totaling $375 million over five years ($75 million per year). This level of funding is less than provided under the 2008 Farm Bill, which had a total budget authority of $320 in mandatory funding, with discretionary funding totaling $750 million over five years ($150 million per year).

Purpose of the Regulatory Action

This rule revises 7 CFR part 4279, subpart C and 7 CFR part 4287, subpart D to implement the provisions contained in the 2014 Farm Bill, modifies the Program to incorporate administrative improvements based on Agency experience in implementing the Program, addresses comments received on the interim final rule, published in the

Federal Register

on February 14, 2011, and incorporates the guaranteed loan provisions of the Agency's Business and Industry (B&I) Guaranteed Loan program to make the rule a “stand alone” rule.

Summary of the Major Changes

The major changes being implemented by this rulemaking are:

• Revised the purpose and scope section by adding Renewable Chemicals and Biobased Product Manufacturing;

• Adding the ability to fund Biobased Product Manufacturing facilities;

• Removing the requirement that the majority of the Biorefinery production must be an Advanced Biofuel in order to be eligible for Program assistance;

• Supplementing the Program to include a “project-finance framework;”

• Implementing a two-phase application process;

• Overhauling the scoring of applications; and

• Limiting Interest accrual to 90 days, in most instances, to determining what the guarantee will cover and what can be included in a loss claim.

Costs and Benefits

The Agency estimates that approximately 95 applicants will submit Phase 1 applications. The burden to these applicants under the new two-phase application process is estimated to be approximately 700 hours per application. The Agency estimates that each applicant who receives a loan guarantee would require an additional 252 hours for reporting and other servicing actions.

The benefits associated with the Program under the subsequent interim rule are, for the most part, the same as those that accrue under the baseline Program. Direct beneficiaries of the Program continue to be those applicants who receive a Section 9003 loan guarantee, but now include owners and operators of Biorefineries whose primary product is a Renewable Chemical and owners and operators of Biobased Product Manufacturing facilities. Indirect beneficiaries of the Program continue to include technology providers of the systems used in advancing these facilities, feedstock

suppliers, producer associations and cooperatives, and Lenders.

Expanding the Program to include Renewable Chemicals and Biobased Product Manufacturing will further potential positive environmental impacts associated with replacing petroleum-based feedstock with renewable biomass feedstock.

The Agency expects the changes (described later in this Notice) to make the Program more attractive to larger, more sophisticated Lenders who are under more regulatory scrutiny than the Lenders that have historically participated in the Agency's guaranteed loan programs. Their participation is necessary due to the size of the Projects funded under the Program. Changes are also made that clarify and streamline Agency application requirements, which will aid Lenders and Borrowers in putting together materials required as part of the application process.

The Agency also expects the changes to the Program to result in a greater diversity of the types of Projects being funded, including Biobased Product Manufacturing facilities and Biorefineries whose primary product is a Renewable Chemical that had not been eligible for funding under the Program as authorized by the 2008 Farm Bill. The Agency further expects these changes to improve the financial feasibility of Biorefineries producing Advanced Biofuels and Renewable Chemicals because Renewable Chemicals typically are of higher value than Advanced Biofuels and have broader market opportunities.

II. Executive Orders/Acts

Executive Order 12866

This interim final rule has been reviewed under Executive Order (EO) 12866 and has been determined to be “economically significant” by the OMB. The EO defines a “significant regulatory action” as one that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect, in a material way, the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in this EO.

The Agency conducted a benefit-cost analysis to fulfill the requirements of EO 12866. In this analysis, the Agency identifies alternatives considered, the distributional effects of the rule changes, the estimated costs of applying for and the potential benefits of receiving Section 9003 funding.

Alternatives Considered

In the benefit-cost analysis, the Agency considered alternatives associated with three provisions—Renewable Chemicals, Biobased Product Manufacturing, and Project diversity.

Renewable Chemicals.

Under the baseline Program, a Biorefinery is required to primarily produce Advanced Biofuels in order to participate; that is, the majority of the Biorefinery's production must be an Advanced Biofuel. The 2014 Farm Bill provisions add “Renewable Chemicals” to the Program's title and its purpose statement, but do not address how Renewable Chemical facilities will be assisted. The Agency, therefore, had to consider how a facility producing Renewable Chemicals would be eligible for a Section 9003 loan guarantee.

The Agency considered whether the 2014 Farm Bill would allow providing loan guarantees to facilities that produced Renewable Chemicals, but did not produce any Advanced Biofuel. The Agency also considered Congressional intent as articulated in the 2014 Farm Bill conference report, which would enable the Program to provide loan guarantees to a wide array of facilities.

After consideration of the entire 2014 Farm Bill provisions, the Agency is removing the regulatory requirement that a Biorefinery primarily produce an Advanced Biofuel. In addition, the subsequent interim rule (this rule) requires that the Biorefinery produce at least some Advanced Biofuel, but it does not set a minimum production level of Advanced Biofuel, and does not require the Advanced Biofuel be sold as Biofuel. The primary effect of these changes is to allow a Biorefinery that primarily produces a Renewable Chemical to apply for a Section 9003 loan guarantee.

Biobased Product Manufacturing.

The 2014 Farm Bill added Biobased Product Manufacturing to the Program's title and purpose statement and provided for up to 15 percent of the mandatory funds for Fiscal Years 2014 and 2015 to be used to support facilities producing Biobased Products for end use. To incorporate Biobased Product Manufacturing facilities into the Program, the Agency considered two approaches—(1) writing separate sections in the rule to address specific Project criteria and administrative requirements for Biobased Product Manufacturing provisions or (2) revising the rule to broadly apply to all types of projects eligible under the Program.

Under the first approach, the Agency would develop criteria and other specific requirements for applications and write separate sections in the rule to address Biobased Product Manufacturing. This approach would require a large amount of duplication or cross referencing to the general rule. In addition, there is no statutory authorization for Biobased Product Manufacturing projects after 15% of the fiscal years 2014 and 2015 mandatory funding is expended on such projects. Thus, this approach would create provisions that would “sunset” after a short period of time.

Under the second approach, which the Agency is implementing, the Agency would revise the rule to apply as broadly as possible to all types of projects eligible under the Program, such as changing references from “biorefinery” to “facility” and to identify in an annual notice the priority scoring criteria that explicitly apply to Biobased Product Manufacturing facilities.

Project diversity.

The 2014 Farm Bill provisions require that there be a diversity of technologies, products, and approaches in the types of Projects approved under the Program. The Agency considered two approaches for addressing Project diversity—specific Project criteria and administrative priority points.

Under the first approach, the Agency would identify one or more priority scoring criteria for specific technologies, products, and approaches that are under-represented in the Program portfolio and update the specific technologies, products, and approaches annually. The Agency determined that this approach would be more cumbersome and it could be difficult to identify new and emerging technologies, products, and approaches in advance of drafting and publishing criteria on an annual basis.

Under the second approach, which the Agency is implementing, the Agency would include the authority for the Administrator to award additional discretionary points in the priority scoring and selection process. This approach provides greater flexibility than the first approach and allows the Agency to respond to changes in the applications and the industries as a whole. As implemented, the Administrator, at the Administrator's discretion, may award up to 10 points to ensure as wide a range as possible of

technologies, products, and approaches are assisted in the Program's portfolio.

Distributional Effects

The subsequent interim rule affects the distribution of costs and benefits across eligible applicants. The subsequent interim rule increases costs to some of the applicants, but decreases the cost to many applicants (

i.e.,

those applicants who are not invited to submit a Phase 2 application). On balance, the two-phase application process reduces the total cost of the Program to the public.

While the types of benefits occurring as a result of the subsequent interim rule are not different from those that occur under the baseline Program, the benefits occur across a broader range of Projects (Renewable Chemicals and Biobased Product Manufacturing). The Agency also expects these changes to improve the financial feasibility of the Biorefineries supplying Renewable Chemicals and other Biobased Products to manufacturing facilities because Renewable Chemicals typically are of higher value than Advanced Biofuels.

The inclusion of the Renewable Chemical and Biobased Product Manufacturing provisions also means that there may be a shift in the entities receiving the benefits—from Biorefineries that primarily produce Advanced Biofuels to those that produce primarily Renewable Chemicals and to facilities that manufacture Biobased Products into end-user products. The extent that such a shift occurs depends in part on the applications received and their merits.

With regard to the distribution of benefits over time, the Program initially directly benefits those who are receiving loan guarantees for the construction and production of the Advanced Biofuels, Renewable Chemicals, and Biobased Products. The benefits of these products will be enjoyed by future generations to the extent that such Projects are successful in growing these businesses to the point where they become part of the long-term economy. While the subsequent interim rule does not directly change this type of distributional effect, the greater inclusion of Renewable Chemicals and the funding of Biobased Product Manufacturing can help ensure that these types of Projects and their products become part of the long-term economy.

Costs

The Agency estimates that the burden to the public of applying for a Section 9003 loan guarantee under the new two-phase application process to be approximately 700 hours per application. The Agency estimates that each applicant who receives a loan guarantee would require an additional 252 hours for reporting and other servicing actions.

Over the three years following the effective date of the subsequent interim rule, the Agency estimates that there will be approximately 95 applicants submitting Phase 1 applications, of which 34 will be invited to submit a Phase 2 application. The number of applicants is based on (1) an assumption of full funding for the Program over the next three years, (2) the fact that we have received approximately three times more applications than we could fund, and (3) the number of expected applications for the first time from biorefineries whose primary output is a Renewable Chemical and from Biobased Product Manufacturing facilities based on inquiries from these sectors.

Benefits

The benefits associated with the Program under the subsequent interim rule are, for the most part, the same as those that accrue under the baseline Program. Direct beneficiaries of the Program are those applicants who receive a Section 9003 loan guarantee, which can be up to $250 million (not to exceed 80 percent of total Eligible Project Costs). As a result of the 2014 Farm Bill, direct beneficiaries will now include owners and operators of Biorefineries whose primary product is a Renewable Chemical and owners and operators of Biobased Product Manufacturing facilities.

Indirect beneficiaries of the Program include the technology providers of the system used in advancing these Biorefineries and Biobased Product Manufacturing facilities, Agriculture Producers and others who supply the feedstock used in these Biorefineries and facilities, producer associations and cooperatives (to the extent that applicants seek to partner with such entities), and Lenders.

By relying on Renewable Biomass feedstock, these Projects have the ability to have a greater positive impact on the environment than similar products produced from petroleum-based feedstock. Expanding the Program to include Renewable Chemicals and Biobased Product Manufacturing will further these potential positive environmental impacts.

Creating diversity in technologies, products, and approaches helps spread the potential for development of new and emerging technologies products, and approaches as broadly as possible thereby achieving a primary purpose of the Program—to assist in the development of new and emerging technologies.

Funding

The 2014 Farm Bill provides $100 million of mandatory funding for the Program for Fiscal Year 2014 and $50 million of mandatory funding for each of Fiscal Years 2015 and 2016. Of the mandatory funding for Fiscal Years 2014 and 2015, the Secretary may use for the cost of loan guarantees not more than 15 percent to promote Biobased Product Manufacturing. The 2014 Farm Bill also enables Congress to approve an additional $75 million of discretionary funding for Fiscal Years 2014 through 2018.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, Rural Development generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, or tribal governments, in the aggregate, or to the private sector of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of the UMRA generally requires Rural Development to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective, or least burdensome alternative that achieves the objectives of the rule.

This rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) for State, local, and tribal governments or the private sector. Thus, this rule is not subject to the requirements of sections 202 and 205 of the UMRA.

National Environmental Policy Act

The Program has been operating since 2009, initially under funding notices, but later under an interim final rule published on February 14, 2011. The Program's regulations are found in 7 CFR part 4279, subpart C and 7 CFR part 4287, subpart D. Under this Program, the Agency conducts a National Environmental Policy Act (NEPA) review for each application received. To date, no significant environmental impacts have been reported, and Findings of No Significant Impact (FONSI) have been issued for each approved application. Taken collectively, the applications show no

potential for significant adverse cumulative effects.

This document has been reviewed in accordance with 7 CFR part 1940, subpart G, “Environmental Program.” Rural Development has determined that this action does not constitute a major Federal action significantly affecting the quality of the human environment, and in accordance with NEPA of 1969, 42 U.S.C. 4321

et seq.,

an Environmental Impact Statement is not required.

Executive Order 12988, Civil Justice Reform

This interim final rule has been reviewed under EO 12988, Civil Justice Reform. In accordance with this rule: (1) all State and local laws and regulations that are in conflict with this rule will be preempted; (2) no retroactive effect will be given to this rule; and (3) administrative proceedings in accordance with the regulations of the Department of Agriculture's National Appeals Division (7 CFR part 11) must be exhausted before bringing suit in court challenging action taken under this rule unless those regulations specifically allow bringing suit at an earlier time.

Executive Order 13132, Federalism

It has been determined, under EO 13132, Federalism, that this interim final rule does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment. The provisions contained in the rule will not have a substantial direct effect on States or their political subdivisions or on the distribution of power and responsibilities among the various government levels.

Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601-612) (RFA) generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the Agency certifies that the rule will not have an economically significant impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions.

Under section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. 605(b), the Agency certifies that this rule will not have a significant economic impact on a substantial number of small entities. This interim rule affects entities that utilize the Section 9003 Guaranteed Loan Program and any prospective entities that may utilize the program in the future. Between fiscal years 2009 and 2014, the Agency received 42 applications. Of these 42 applications, 28 applications were either withdrawn by the applicant/borrower, were determined by the Agency to be ineligible, or have had program funds previously committed, deobligated. Of the remaining 14 applications, the Agency issued 10 Conditional Commitments and 4 applications are pending further review and evaluation. The Agency estimates that most, if not all, of the entities that submitted applications would be considered a small entity, as defined by the Regulatory Flexibility Act, based on using the SBA-established threshold of 1,000 employees for defining a small business for the NAICS code 325199 (which is often used as a default code for many the entities applying for the Section 9003 program). Because of this high percentage, the Agency has determined that this rule will have an impact on a substantial number of small entities.

However, the Agency has determined that the economic impact of this rule on these entities will not be significant. The most significant change in the rule that affects entities applying for this program is the implementation of the two-phase application process, which will have a positive impact on most applicants. Under the two-phase application process, all applicants must submit a Phase I application and then only a smaller subset of these applicants would submit the Phase II application. Under the current interim rule, all applicants have to submit an application that is equivalent to a combined Phase I and Phase II application. The new application process reduces the cost to those applicants who are “unsuccessful”—that is, to those who are not invited to submit a Phase II application. This change reduces the impact of the Section 9003 program by almost 70 percent for the “unsuccessful” applicant. Thus, under the new application process, 67 percent of the applicants between fiscal years 2009 and 2014 would have incurred significantly lower application costs.

Based on the data in the Paperwork Reduction Act (PRA) burden package, the Agency estimates the cost of the rule to be approximately $31,000 per successful applicant. This is based on determining which of the estimated costs in the PRA burden package would be incurred by the entities applying for and participating in the program. As noted above, most of the entities applying for and participating in the Section 9003 program are likely to be small businesses. The Agency examined the 10 entities to whom conditional commitments were made and the four entities whose applications are still pending. With the exception of two projects, none of the projects are yet operating. Thus, the Agency does not have actual financial information to use to evaluate the impact of the rule on these entities. Therefore, the Agency elected to look at the financial data (specifically, projected revenue or sales data when the projects reach full production) supplied in the applications and upon which the Agency made its decisions as to which projects to issue conditional commitments. Based on these data, the range of projected annual revenues/sales for these 14 projects is $4.1 million to $262 million. A cost of $31,000 per entity represents approximately 0.75% of the projected revenues for the smallest projected revenue stream down to 0.01% for the largest. Therefore, this rule will not have a significant impact on a substantial number of small entities.

Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use

The regulatory impact analysis conducted for this interim final rule meets the requirements for EO 13211, which states that an agency undertaking regulatory actions related to energy supply, distribution, or use is to prepare a Statement of Energy Effects. This analysis finds that this rule will not have any adverse impacts on energy supply, distribution, or use.

Executive Order 12372, Intergovernmental Review of Federal Programs

This Program is not subject to the provisions of EO 12372, which require intergovernmental consultation with State and local officials.

Executive Order 13175, Consultation and Coordination with Indian Tribes

This EO imposes requirements on Rural Development in the development of regulatory policies that have tribal implications or preempt tribal laws. Rural Development has determined that this rule does not have a substantial direct effect on one or more Indian Tribe(s) or on either the relationship or the distribution of powers and responsibilities between the Federal Government and the Indian Tribes. Thus, this notice is not subject to the requirements of EO 13175.

Programs Affected

The Biorefinery Assistance Program is listed in the Catalog of Federal Domestic Assistance under Number 10.865. This will be updated with the Program's new name, as changed by the 2014 Farm Bill, the “Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance Program.”

Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1995, the Rural Business-Cooperative Service announces its intention to seek OMB approval of the new reporting and recordkeeping requirements contained in this rule.

The following annual estimates are based on an estimated volume of activity of 32 Phase 1 applications, 11 Phase 2 applications, and 6 new loan guarantees. Phase 1 applications are evaluated by the Agency to determine whether the Borrower is eligible, the proposed loan is for an eligible purpose, there is reasonable assurance of repayment ability, there is sufficient Collateral and equity, and the proposed loan complies with all applicable statutes and regulations. Phase 2 applications are only required for those applicants submitting eligible, high scoring phase I applications.

Estimate of Burden:

Public reporting burden for the requirements will increase the current collection of information by an estimated total of 6,281 hours. The Agency anticipates the number of respondents to fluctuate based on funding levels. The average burden per respondent under the current interim rule is estimated to be 148 hours, and the average burden under the subsequent interim rule is estimated to be 410 hours, for an estimated increase of 262 hours per respondent.

Respondents:

Respondents for this data are lending institutions and for profit businesses but also include individuals and corporations, non-profit businesses, Indian Tribes, units of State and Local Governments, farmer and rural electric cooperatives, Associations of Agricultural Producers, Institutions of Higher Education, public power entities, and consortiums of any of the foregoing entities. The annual estimates below are for both subparts associated with this rule.

Estimated Number of Respondents:

32.

Estimated Number of Responses per Respondent:

23.5.

Estimated Number of Responses:

752.

Estimated Total Annual Burden (hours) on Respondents:

13,115.

Copies of this information collection can be obtained from Jeanne Jacobs, Regulations and Paperwork Management Branch, Support Services Division, U.S. Department of Agriculture, Rural Development, STOP 0742, 1400 Independence Ave. SW., Washington, DC 20250-0742 or by calling (202) 692-0040.

Comments:

Comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the Agency, including whether the information will have practical utility; (b) the accuracy of the Agency's estimate of the burden of the proposed collection of information including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.

Comments may be sent to Jeanne Jacobs, Regulations and Paperwork Management Branch, U.S. Department of Agriculture, Rural Development, STOP 0742, 1400 Independence Ave. SW., Washington, DC 20250. All responses to this rule will be summarized and included in the request for OMB approval. All comments will also become a matter of public record.

E-Government Act Compliance

Rural Development is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

USDA Non-Discrimination Statement

The U.S. Department of Agriculture (USDA) prohibits discrimination against its customers, employees, and applicants for employment on the bases of race, color, national origin, age, disability, sex, gender identity, religion, reprisal and, where applicable, political beliefs, marital status, familial or parental status, sexual orientation, or all or part of an individual's income is derived from any public assistance program, or protected genetic information in employment or in any program or activity conducted or funded by the Department. (Not all prohibited bases will apply to all programs and/or employment activities.)

If you wish to file an employment complaint, you must contact your agency's EEO Counselor (PDF) within 45 days of the date of the alleged discriminatory act, event, or in the case of a personnel action. Additional information can be found online at

http://www.ascr.usda.gov/complaint_filing_file.html

If you wish to file a Civil Rights program complaint of discrimination, complete the USDA Program Discrimination Complaint Form (PDF), found online at

http://www.ascr.usda.gov/complaint_filing_cust.html

, or at any USDA office, or call (866) 632-9992 to request the form. You may also write a letter containing all of the information requested in the form. Send your completed complaint form or letter to us by mail at U.S. Department of Agriculture, Director, Office of Adjudication, 1400 Independence Avenue SW., Washington, DC 20250-9410, by fax (202) 690-7442 or email at

program.intake@usda.gov

.

Individuals who are deaf, hard of hearing, or have speech disabilities and you wish to file either an EEO or program complaint please contact USDA through the Federal Relay Service at (800) 877-8339 or (800) 845-6136 (in Spanish).

Persons with disabilities who wish to file a program complaint, please see information above on how to contact us by mail directly or by email. If you require alternative means of communication for program information (

e.g.,

Braille, large print, audiotape, etc.) please contact USDA's TARGET Center at (202) 720-2600 (voice and TDD).

III. Background

On February 14, 2011, the Agency published an interim final rule for the Biorefinery Assistance Program (the Program) in the

Federal Register

(76 FR 8404). The interim final rule addressed comments that the Agency received on the proposed rule, which was published in the

Federal Register

on April 16, 2010 (75 FR 20044), and to clarify proposed provisions. Changes were made throughout the rule, with many of the changes addressing definitions; Lender, Borrower, and Project eligibility requirements; application requirements and scoring; and various loan guarantee provisions, such as those associated with conditions of guarantee, fee, Interest rates and loan terms, and maximum percent guarantee.

The interim final rule became effective on March 16, 2011, and the Agency provided a 60-day comment period for the public to submit comments on the interim final rule.

Today's action is addressing the public comments received.

On February 7, 2014, the 2014 Farm Bill was signed into law. Section 9003 of the 2014 Farm Bill addresses the Program. The Agency held a listening session on March 13, 2014, to receive input from interested stakeholders on the various energy and bioeconomy provisions of the 2014 Farm Bill. No comments specific to the Program were received.

In addition to renaming the Program the “Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance,” Section 9003 affects funding associated with Biobased Product Manufacturing facilities and funding associated with Biorefineries producing Renewable Chemicals. Section 9003 also requires the Secretary of Agriculture to ensure diversity in the types of Projects approved under the Program.

The Agency has been implementing the Program since the 2008 Farm Bill. During this time, the Agency has applied a “commercial lending” framework to the Program. The Agency has determined that the Program can be implemented more effectively by adding the flexibility of using a “project finance-based” framework. In order to add project finance-based framework aspects, it is necessary to revise certain Program provisions, which are discussed later in this preamble.

Lastly, the Agency is restructuring the rule to be a “stand alone” rule. The current interim rule relies heavily on incorporating the guaranteed loan provisions of the Agency's B&I Guaranteed Loan program. The Agency has decided to eliminate the extensive cross-references to the B&I Guaranteed Loan program and in its place create a “self-contained” rule for the Program. In the course of doing this, the Agency is taking the opportunity to clarify and/or modify many of the provisions previously incorporated by reference in order to improve Program administration.

Most of the current interim rule's provisions have been carried forward into the subsequent interim rule, although there have been several significant changes. A summary of major changes to the current interim rule are summarized below in Section IV of this preamble. All of the comments received on the current interim rule and during the listening session are summarized in Section V of this preamble. Section VI presents in brief the substantive changes, if any, made in each section of the rule.

Interim final rule.

USDA Rural Development is issuing this rule as an interim final rule, effective July 24, 2015. All provisions of this rule are adopted on an interim final basis, are subject to a 60-day comment period, and will remain in effect until the Agency adopts the final rule.

IV. Discussion of Major Changes to the Program

As noted above, the changes being made to the Program are due to: (1) Statutory changes resulting from the 2014 Farm Bill, (2) based on the Agency's experience in operating the Program since it was authorized in 2008, amending the Program to enable flexibility to use a project finance-based framework, (3) the Agency's consideration of public comments on the February 14, 2011, interim final rule, and (4) the Agency's decision to create a “self-contained” rule. The following discussion presents the major changes made in response to these four considerations.

A. The 2014 Farm Bill

Section 9003 of the 2014 Farm Bill requires the Agency to modify the current interim rule in order to:

• include Biorefineries that primarily produce Renewable Chemicals;

• include Biobased Product Manufacturing; and

• ensure that there is diversity in the types of Projects approved.

1. Renewable Chemicals

The 2014 Farm Bill provisions add “Renewable Chemicals” to the Program's title and purpose statement, but do not address how the Program will assist Renewable Chemical facilities.

Currently, Biorefineries are required to primarily produce Advanced Biofuels in order to participate. Under the subsequent interim rule, the Agency is removing the regulatory requirement that the majority of production of a Biorefinery be an Advanced Biofuel. By removing this regulatory requirement, a Biorefinery producing Advanced Biofuel and Renewable Chemicals, will be able to participate without having to meet a specific minimum threshold production level of Advanced Biofuel.

When considering the eligibility of Biorefineries that produce Renewable Chemicals, the Agency will include in its consideration reliance on the program purpose and scope and the definitions of “Biorefinery” and “Eligible Technology” as found in 7 U.S.C. 8101 and 8103).

The purpose of the Program is to assist in the development of Advanced Biofuels, Renewable Chemicals, and Biobased Product Manufacturing.

“Biorefinery.—The term `Biorefinery' means a facility (including equipment and processes) that (A) converts

renewable biomass

into

biofuels

and

biobased products;

and (B) may produce electricity.” 7 U.S.C. 8101(7) (emphasis added.) The Agency interprets this definition to mean that the facility must produce Biofuel and may produce Biobased Products (which includes Renewable Chemicals) and may produce electricity.

“Eligible technology.—The term `Eligible Technology' means, as determined by the Secretary (A) a technology that is being adopted in a viable Commercial-Scale operation of

a Biorefinery that produces an Advanced Biofuel;

and (B) a technology not described in subparagraph (A) that has been demonstrated to have technical and economic potential for commercial application in

a Biorefinery that produces an Advanced Biofuel.”

7 U.S.C. 8103(b)(2) (emphasis added.)

Under the subsequent interim rule, a Biorefinery may convert Renewable Biomass into Renewable Chemicals or Biobased Products and must produce an Advanced Biofuel.

While requiring Biorefineries produce an Advanced Biofuel, the subsequent interim rule does not set a specific minimum production level of Advanced Biofuel and does not require that the Advanced Biofuel be sold as Biofuel. A Biorefinery may sell the Advanced Biofuel that it produces as a Biofuel or for other non-fuel usage. A Biorefinery may further process the Advanced Biofuel into Renewable Chemicals or other Biobased Products or use the Biofuel as a fuel for heat or power in its process or generate electricity.

Food or feed are not eligible Biobased Products (see § 4279.202 for definition of Biobased Products). However, a Renewable Chemical that is food-grade would be eligible.

In summary, the subsequent interim rule requires that at least some amount of Advanced Biofuel is produced, but does not set a specific minimum production level of Advanced Biofuel. The subsequent interim rule does not require that the Advanced Biofuel be sold as Biofuel. The Biorefinery may sell the Advanced Biofuel that it produces as a Biofuel, Renewable Chemical, or for other non-fuel usage. Further, the Biorefinery may process the Advanced Biofuel into Renewable Chemicals or other Biobased Products or use the Biofuel as a fuel for heat or power in its process or generate electricity.

2. Biobased product manufacturing facilities

The primary substantive change related to Biobased Product Manufacturing facilities is that the Program will now be able to provide funding to Biobased Product Manufacturing facilities.

The 2014 Farm Bill provides the definition of “Biobased Product Manufacturing,” which the Agency has incorporated into the subsequent interim rule. See § 4279.202. This definition requires the Biobased Product Manufacturing facility to use Renewable Chemicals and other biobased outputs of Biorefineries as inputs to produce end-user products. The facility must also use Technologically New Commercial-Scale processing and manufacturing equipment.

As being implemented under the subsequent interim rule, these facilities can be either stand-alone facilities or add-ons to existing Biorefineries. The amount of funding that can be used to support these facilities is limited by the 2014 Farm Bill to no more than 15 percent of mandatory funds made available in FY 2014 and FY 2015 to promote Biobased Product Manufacturing. (Note: This excludes any and all FY 2016 mandatory funds and all discretionary funds.)

The Agency is adding a new paragraph to the Project eligibility section to address Biobased Product Manufacturing facilities. The general Program requirements apply to financing of Biobased Product Manufacturing facilities. The Agency will publish, subsequent to the publication of this rule, a notice in the

Federal Register

soliciting applications for Biobased Product Manufacturing facilities.

3. Project Diversity

The 2014 Farm Bill provisions require that there be diversity in the types of Projects approved under the Program. The relevant provision states “the Secretary shall ensure that, to the extent practicable, there is diversity in the types of Projects approved for loan guarantees to ensure that as wide a range as possible of technologies, products, and approaches are assisted.” 7 U.S.C. 8103(d)(1)(D).

The Agency is implementing this provision by including authority for the Administrator to award discretionary points in the priority scoring and selection process. As implemented under the subsequent interim rule, the Administrator, at the Administrator's discretion, may award up to 10 points to ensure as wide a range as possible of technologies, products, and approaches are assisted in the Program's portfolio.

B. Improvements in program administration

As has been noted, the Agency is supplementing the commercial lending framework with the flexibility to use a project finance-based framework. A commercial loan is generally made to well-established companies in established industries. Commercial loans are secured by business assets. The evaluation of a commercial loan is generally based on the historical financial performance of the business and its financial performance in comparison to its industry peers.

Project financing is the financing of infrastructure and industrial projects. The evaluation of a project financing loan relies primarily on the development of a project and its cash flow for repayment, with the project's assets as secondary security or collateral.

Supplementing the Program with a project finance-based framework will align the Program with the Lenders standards and procedures and improve the Agency's evaluation of loan guarantee applications and credit risks. Significant changes are discussed below.

1. Two-Phase Application Process

The rule currently requires all applicants to submit a complete application including a technical report, environmental analysis, and the Lender's credit evaluation, as specified in the rule. The subsequent interim rule divides the application process into two phases. Phase 1 applications will provide information to determine Lender, Borrower, and Project eligibility; preliminary economic and technical feasibility; and the priority score of the application. Based on the priority score ranking, the Agency will invite applicants whose Phase 1 applications receive higher priority scores to submit Phase 2 applications. Phase 2 application materials will be submitted as the project planning and engineering is finalized and will include an environmental report, technical report, financial model, and the Lender's credit evaluation, as specified in the rule.

Phase 1 Application Materials

[Phase 1 application content must be submitted in an initial complete application package]

1. Project Summary.

2. Application form, Form RD 4279-1.

3. Financial statements—Audited annual statements and current statements.

4. Financial model and supporting assumptions.

5. Feasibility Study.

6. Business Plan.

7. Scoring information.

8. Intergovernmental consultation.

9. DUNS Number.

Phase 2 Application Materials

[Phase 2 application materials are submitted under the direction of the Agency and may be submitted as the materials are developed or updated]

1. Technical assessment/Technical Report.

2. Environmental Assessment.

3. Updates to application materials, as appropriate.

4. Other information requested by the Agency including contacts and agreements.

5. Lender's analysis, credit evaluation, and supporting materials.

6. Appraisals.

7. Lender's proposed Loan Agreement.

8. Estimate timing of loan closing and issuance of the Loan Note Guarantee (pre-construction or post-construction).

9. Credit rating—obtained under the direction of the Agency after loan terms and conditions have been established.

2. Credit Evaluation

The current interim rule requires Lenders to include an analysis of the credit factors associated with each guarantee application, including consideration of each of the following five elements:

(1) Credit worthiness.

(2) Cash flow.

(3) Capital.

(4) Collateral.

(5) Conditions.

Rather than focusing on a limited listing of elements, the subsequent interim rule requires the Lender to analyze all credit factors associated with each proposed loan and apply its professional judgment to determine that the credit factors, considered in combination, ensure loan repayment. This allows the Lender to apply a commercial lending framework or a project finance framework, as appropriate, on a project-by-project basis.

The Agency has identified in the subsequent interim rule the factors it uses to conduct its credit evaluation of the Project and Borrower. These factors include, but are not limited to, debt structure, revenues, technical feasibility, project equity, and other project funding.

3. Collateral Evaluation

Under the current interim rule, the adequacy of the Collateral is based on the value of the Project assets and requires the discounted Collateral value to be at least equal to the loan amount. The current interim rule does not evaluate the Collateral from the perspective of the Project's cash flow for repayment. However, of the Projects financed under this Program, the value of the assets is directly related to the Project's cash flow.

Under the subsequent interim rule, the Agency has the flexibility to determine how Collateral will be evaluated on a case-by-case basis, taking into account the type of project and the types of assets.

4. Lender Responsibilities

The subsequent interim rule places more emphasis on the Lender obtaining and relying on certain written materials (including, but not limited to, certifications, evaluations, appraisals, financial statements and other reports) from qualified third parties (including, among others, one or more independent engineers, appraisers, accountants, attorneys, consultants or other experts).

C. Public Comments on Interim Final Rule

The Agency received four comment letters from the public on the current interim rule (see Section V below.) After reviewing the public comments, the Agency identified a number of changes to improve the Program including:

• Removing the 500 basis point spread requirement between the guaranteed and unguaranteed portions of the loan. (§ 4279.231(a) of the current interim rule)

• Clarifying when a subordinate lien position may be taken on Borrower inventory and accounts receivables. (§ 4279.235(a))

• Adding a provision to allow the Lender to require Borrowers to fund debt service reserve accounts with loan proceeds. (§ 4279.210(c)(7))

• Revising the requirement for a Borrower to obtain an evaluation and either a credit rating or credit assessment for loan requests of $125 million or greater to requiring the Borrower to obtain a an evaluation and rating of the total Project's indebtedness, without consideration for a government guarantee, from a nationally-recognized statistical rating organization (NRSRO), as defined by the U.S. Security and Exchange Commission for all Projects with total Eligible Project Costs of $25 million or more. An updated rating may be required at the Agency's discretion if changes are subsequently made to the Project including changes to any contracts and agreements or changes to loan terms and conditions. (§ 4279.261(k)(5))

D. Stand-Alone Rule

As discussed earlier, the Agency is restructuring the rule to be a “stand alone” rule. The current interim rule relies heavily on incorporating the guaranteed loan provisions of the Agency's B&I Guaranteed Loan program. The Agency has decided to eliminate the extensive cross-references to the B&I Guaranteed Loan program and in its place create a “self-contained” rule for the Program. In the course of doing this, the Agency has restructured the rule. While the majority of the current interim rule's provisions have been carried forward, a number of provisions have been relocated. In addition, the Agency took the opportunity to clarify and/or modify many of the provisions previously incorporated by reference in order to improve Program administration.

V. Summary of Comments and Responses

As noted earlier, the current interim rule was published in the

Federal Register

on February 14, 2011, with a 60-day comment period that ended April 15, 2011. The Agency received comments from four commenters, which included Biorefinery owner/operators, Lenders and investment banking institutions. As a result of some of the comments, the Agency made changes in the rule. The Agency sincerely appreciates the time and effort of all commenters.

A. Equity Requirements

Comment:

One commenter encouraged USDA to allow contributions of other real and personal property previously purchased with cash to count towards the Project equity requirement.

Two commenters recommended clarification as to whether or not the Fair Market Value of the Project, based on audited financial statements, can be used in whole or in part to meet equity requirements. One of these two commenters also recommended clarification as to whether or not the value of qualified intellectual property based on audited financial statements may be substituted in whole or in part to meet equity requirements.

One commenter recommended applying the Generally Accepted Accounting Principles (GAAP) utilized in the B&I Guaranteed Loan program such that the equity requirement may be calculated by deducting Federal grants from Eligible Project Costs in arriving at the equity requirement.

One commenter recommended allowing Project assets funded with other Federal grants, as well as other subordinate financing, to qualify as Project equity in arriving at the 20 percent equity requirement. Another commenter also recommended including subordinated financing as Project equity for purposes of satisfying the Program's equity requirements.

Response:

The subsequent interim rule clarifies that Total Federal participation will not exceed 80 percent of total Eligible Project Costs. The subsequent interim rule states that the total amount of a loan guaranteed for a Project plus other Federal funding in the Project will not exceed 80 percent of total Eligible Project Costs. The remaining 20 percent of total eligible project cost must be funded from non-Federal sources. In addition, the subsequent interim rule revises the equity requirement by removing the balance sheet or financial statement equity test. The subsequent interim rule requires the Borrower and other principals involved in the Project to make a significant equity investment in the Project in the form of cash

contribution. Equity does not include loans to the Project. The Agency will establish the specific amount of equity it requires on a project-by-project basis based on its credit evaluation.

The following diagram illustrates the Project funding requirements and differentiates the cash equity requirement from non-Federal funding requirement:

ER24JN15.000

B. Financing More Than One Facility

Comment:

One commenter recommended clarifying whether or not more than one facility can be financed, together in the same loan package in order to be able to cross collateralize and to reduce application costs.

Response:

There is no provision in the current or subsequent interim rule that excludes Projects that would provide financing for more than one facility in one application. Thus, Projects may be submitted with more than one facility under the same loan application.

C. Interest Rates

Comment:

Two commenters stated that the Interest rate spread on the guaranteed and unguaranteed portions of the loan should not be restricted and should be allowed to follow market rates for similar investments with commensurate risk.

Response:

The Agency agrees that the Interest rates on the guaranteed and unguaranteed portions of the loan should be set by the market and this change has been incorporated into the subsequent interim rule. The requirement from the current interim rule of a maximum 500 basis point spread between the Interest rates on the guaranteed and unguaranteed portions of the loan has been removed.

D. Minimum Retention

Comment:

One commenter requested that the Agency lower the amount of the unguaranteed portion of the loan that the Lender must hold from 7.5 percent to 5 percent.

Response:

The subsequent interim rule maintains that the Lender must retain 7.5 percent of the total loan amount. However, it allows for the Agency to reduce the percentage of the specific loan held, on a case by case basis, if the Lender establishes to the Secretary's satisfaction that reduction of the minimum retention percentage is to meet compliance with the Lender's regulatory authority.

E. Prototypes

Comment:

One commenter stated that alternate approaches to prototype testing of complex processes and facilities should be considered to build confidence for Commercial-Scale readiness. The commenter requests that the Agency allow “Semi-Work” Scale testing combined with predictive modeling to cut the cost of demonstration scale testing.

Response:

The Agency disagrees with the commenter. The Projects financed in the Program all involve complex processes which are stand-alone but must be integrated with each other for the facilities to be successful. Integrated demonstration of all necessary processes provides the best way of minimizing risk to both the Lender and the Agency. Under the subsequent interim rule, Projects utilizing a technology that does not have a history of successful utilization in a Commercial-Scale operation of a Biorefinery that produces an Advanced Biofuel will be required to provide evidence supporting technical information and data for 120 days of continuous, steady state production from an integrated demonstration unit facility prior to issuance of the Loan Note Guarantee. The integrated demonstration unit must prove out the Project's ability to utilize Project relevant biomass and produce Advanced Biofuel at a yield and quality consistent with the design basis of the Project.

F. Liens

Comment:

One commenter recommended allowing a senior lien on the Borrower's cash in order to secure a portion of the unguaranteed loan amount retained by the Lender.

Response:

The Agency disagrees with the commenter's recommendation. It is important the Lender have a financial interest in the success and also in any possible failure of the Project and

requiring that the Lender hold a certain percentage of the unguaranteed portion of the loan, and not allowing additional Collateral solely to secure the unguaranteed portion of the loan, is key to that position. Therefore, the rule does not allow for additional Collateral to be obtained solely for the purpose of securing the amount of the unguaranteed portion of the loan that must be held by the Lender.

Comment:

One commenter requested that the Agency clarify whether or not a Working Capital Lender may secure a senior lien position on inventory and accounts receivables and also have senior payment rights with respect to the proceeds of the sale of that Collateral.

Response:

The subsequent interim rule allows a Working Capital Lender to take a senior lien position on inventory and accounts receivables. The financial structure of the Project is under the discretion of the Lender and submitted to the Agency for review. If the Lender chooses to allow another banking institution to secure a lien on inventory and accounts receivables in exchange for Working Capital, it is permissible, provided that all Collateral requirements for the Agency guaranteed loan are met.

G. Tax Exempt Financing

Comment:

One commenter recommended allowing tax exempt financing to fund the unguaranteed portion of the loan.

Response:

OMB Circular A-129, Policies for Federal Credit Programs and Non-Tax Receivables, precludes adopting the commenter's suggestion.

H. Sale or Assignment

Comment:

One commenter recommended allowing the sale or assignment of a portion of the guarantee to subsidiaries or Affiliates under certain conditions.

Response:

It is the Agency's position that allowing the sale or assignment of a portion of the guarantee to subsidiaries or Affiliates constitutes a Conflict of Interest. In some servicing actions, such as changing loan terms and Interest rate reductions, the Holder of portions of the guaranteed loan would have to approve the modification. The Agency's concern is that allowing subsidiaries or Affiliates to have control over loan modifications that they have a direct benefit in constitutes a Conflict of Interest. To avoid any appearance of a Conflict of Interest, the subsequent interim rule prohibits the sale or assignment of any portion of the guaranteed loan to the Borrower or its parent, subsidiary or Affiliate or to officers, directors, stockholders, other owners, or members of their Immediate Families.

I. Bonds

Comment:

One commenter stated that any Agency required debt service reserve funds should not be viewed as Collateral for Bonds but rather as an accommodation to the bond market and that the proceeds of the sale of the Bonds should be permitted to be used to fund the debt service reserve funds thus making them Eligible Project Costs.

Response:

The Agency agrees with the commenter. The subsequent interim rule allows for the use of guaranteed loan or Bond proceeds to be used to fund a debt service reserve account, if the Lender deems it necessary. The Agency reserves the right to require a debt service reserve on all Projects.

J. Collateral

Comment:

One commenter stated that USDA should include assets acquired with other Federal funds on which the Lender is require to have first lien in the definition of Collateral in determining the value of Collateral, including loan-to-value calculations and net worth covenants.

Response:

The Agency agrees with the commenter and has modified the rule accordingly. The subsequent interim rule does not require that assets acquired with Federal funds be excluded from the total value of Collateral. Under the Program, the onus is on the Lender to obtain and maintain proper and adequate Collateral to protect the interest of the Lender, the Holder, and the Agency.

K. Eligible Project Costs

Comment:

One commenter requested a clarification whether or not the following are considered Eligible Project Costs: capitalized Interest, cost of financing, overhead expenditures of the Borrower related directly to a Project, development fees, license fees, third party engineering costs and other expenses such as rail lines, roads, and electric power lines.

Response:

All of the expenses listed by the commenter, except for development fees, would be considered Eligible Project Costs.

L. Credit Assessment

Comment:

One commenter recommended requiring a credit assessment on loans larger than $125 million rather than requiring a credit rating, which has significantly higher costs.

Response:

The Agency has removed the requirement for a credit rating from all applicants for loans of $125 million and more and will require an evaluation and rating only for applicants selected for Phase 2 applications. The Agency is requiring an evaluation and rating of the total Project's indebtedness, without consideration for a government guarantee, from a nationally-recognized statistical rating organization (NRSRO), as defined by the U.S. Security and Exchange Commission, for all Projects with total Eligible Project Costs of $25 million submitting phase 2 applications. An updated rating may be required at the Agency's discretion if changes are subsequently made to the Project including changes to any contracts and agreements or changes to loan terms and conditions.

M. Surety

Comment:

One commenter recommended removing the requirement that surety be secured on work to be completed.

Response:

The Agency disagrees with the commenter. The commenter claims that the types of Projects in the Program will not be able to meet that requirement because these Projects are first-of-a-kind technology Projects where contractors will not accept the risk of a lump sum fixed price contract. Based on the Projects submitted to the Agency for review thus far, the majority have fixed price engineering, procurement and construction contracts, and many have wraps on the individual processes that constitute the Project. The rule specifies that Surety, as the term is commonly used in the industry, will be required. The Borrower must have either 100 percent performance/payment bonds on the contractors or a guarantee from a creditworthy parent entity or an alternative acceptable to the Lender and the Agency and must be secured. The bonding agent must be listed on Treasury Circular 570.

VI. Section-By-Section Discussion

This section presents, in brief, substantive changes and notable clarifications to the rule on a section-by-section basis. In developing the stand-alone rule, many existing provisions have been relocated to different places in the rule. Such relocations are not identified in the following discussion because the requirement itself has not changed.

A. 7 CFR Part 4279, Subpart C

Purpose and scope (§ 4279.201)

The Agency modified this section to reflect expansion of the Program as a result of the 2014 Farm Bill provisions to address Renewable Chemicals and

Biobased Product Manufacturing and to reflect more directly the authorizing language establishing the Program.

Definitions and abbreviations (§ 4279.202)

The Agency deleted terms that are no longer used within the rule. The Agency also added terms to, in part, incorporate changes in response to the 2014 Farm Bill and make improvements to the administration of the Program. Added terms include, but are not limited to:

• Annual Renewal Fee

• Biobased Product Manufacturing

• Bond

• Commercial-Scale

• Conflict of Interest

• Delinquency

• Good cause

• Grossly Negligent Loan Origination

• Grossly Negligent Loan Servicing

• In-house Expenses

• Interest termination date

• Liquidation Expenses

• Loan Packager

• Loan Service Provider

• Local Government

• Person

• Public Body

• Renewable Chemical

• Technologically New

• Well Capitalized

Exception authority (§ 4279.203)

The Agency did not make any substantive changes to this section.

Appeals (§ 4279.204)

The Agency provided additional examples and clarifications to this section, including reference to “adverse” decisions, but did not make any other substantive changes.

Prohibition under Agency programs (§ 4279.205)

The Agency did not make any substantive changes to this section. The Agency removed the prohibition of assistance to Government employees and active military personnel who are directors or officers or have an ownership interest of 20 percent or more in the business from being eligible applicants. While this change has the potential to increase the pool of applicants, the Agency expects the actual impact to be minimal.

Agency representation (§ 4279.206)

The Agency added this new section to ensure that in any litigation case in which the Agency is named a party the Agency has the right to be represented by the U.S. Department of Justice.

Lender eligibility requirements (§ 4279.208)

The Agency replaced the specific Lender capital requirements with a cross-reference to FDIC's definition of “Well Capitalized.” This modification, however, does not change the actual capital requirements.

The Agency also supplemented when Lenders must notify the Agency when under a “cease-and-desist order” with “or other similar constraint, from a Federal agency” to cover instances where different terminology is used.

In addition, insurance companies regulated by a State or National insurance regulatory agency are no longer eligible for the Program.

Borrower eligibility requirements (§ 4279.209)

The Agency did not make any changes to this section.

Project eligibility requirements (§ 4279.210)

The Agency made a number of changes to this section including:

• Requiring that the Borrower and other principals involved in the Project make a significant equity investment in the Project in the form of cash contribution, with the specific amount of equity required determined by the Agency on a project-by-project basis based on its credit evaluation;

• Incorporating requirements associated with the 2014 Farm Bill provisions for Renewable Chemicals and Biobased Product manufacturing.

• Removing the provisions associated with the requirement that the majority of the Biorefinery production must be an Advanced Biofuel.

• Removing the paragraph addressing eligible feedstock. Feedstock is addressed in the definitions of “Advanced Biofuel”, “Biorefinery”, and “Renewable Biomass.”

• Clarifying Eligible Project Costs include an integrated demonstration unit under certain circumstances, professional services, necessary insurance and bonds, financing fees and costs, and cash reserve accounts.

• Incorporating ineligible project costs into this section. Changes include reducing/simplifying the identified ineligible purposes to only those costs that are most applicable to the Program; clarifying processing of corn kernel starch into biofuel is ineligible; and payments in excess of actual costs incurred by the contractor are ineligible under certain conditions. The absence of other ineligible loan purposes or project costs that are incorporated by reference under the current interim rule does not mean that they are now eligible.

General functions and responsibilities (§ 4279.214)

The Agency made three substantive changes in this section:

• Clarifying the Lender's responsibility when contracting with third parties and when relying on information from qualified third parties.

• Prohibiting agents and Persons from acting as both Loan Packager and Loan Service Provider on the same guaranteed loan. This implements a best practice.

• Requiring the keeping of a Collateral inventory by the Lender. This implements a best practice that a reasonable Lender should be doing as part of its normal business practice.

Credit evaluation (§ 4279.215)

The Agency revised this section based on experience administering the Program (as discussed earlier in Section III, Background.)

Environmental responsibilities (§ 4279.216)

The Agency changed the role of the Lender from helping the Borrower complete Form RD 1940-20, “Request for Environmental Information,” to ensuring that the Borrower has provided the environmental assessment.

Oversight and monitoring (§ 4279.217)

The Agency did not make any substantive changes to this section.

General conditions of guarantee (§ 4279.220)

The Agency made two primary modifications to this section. First, the Lender may request a change in the standard from “negligent” to “grossly negligent” for Loan Origination and Loan Servicing. The Agency will make this change on a case-by-case basis and only when the Lender can demonstrate to the Agency's satisfaction that changing to a “gross negligence” standard will not materially impair the Agency's interests, determined solely at the Agency's discretion. The subsequent interim rule identifies several additional conditions that must be met for the Agency to grant such a request.

Second, the Agency instituted a limitation on the period of time over which accrued Interest would be covered by the Loan Note Guarantee. If the Lender owns all or a portion of the guaranteed interest in the guaranteed loan or make a Protective Advance, the Loan Note Guarantee will not cover interest to the Lender accruing after 90 days from the most recent Delinquency effect date as reported by the Lender. If the guaranteed loan has one or more Holders, the Loan Note Guarantee will

not cover interest to the Holder(s) accruing after the greater of 90 days from the most recent Delinquency effect date as reported by the Lender or 30 days from the date the Lender or the Agency sends an interest termination letter to the Holder(s). These conditions are found in the definition of Interest Termination Date.

Rights and liabilities (§ 4279.221)

The Agency did not make any substantive changes to this section.

Payments (§ 4279.222)

The Agency did not make any substantive changes to this section.

Sale or assignment of guaranteed loan (§ 4279.223)

The Agency made a number of clarifications to this section to ensure Lenders know how the process works.

The Agency modified provisions associated with the multi-note option. The Agency removed limits on the number of notes that can be issued under the multi-note option. The Agency also removed the provision that allowed the Lender to issue a new series of notes when a loan is closed using the multi-note option and additional notes are desired at a later date.

Minimum retention (§ 4279.224)

The Agency did not make any substantive changes to this section.

Repurchase from Holder (§ 4279.225)

The Agency replaced the current provisions associated with the accrued Interest that the guarantee will cover with the provisions described above under § 4279.220 and the Interest Termination Date definition and now addresses these provisions in paragraphs (b)(3) through (5) of the section.

The Agency clarified that if the Agency repurchases 100 percent of the guaranteed portion of the loan, the Agency will not continue collection of the Annual Renewal Fee from the Lender.

The Agency also made a number of clarifications to ensure Holders know how the repurchase process works.

Replacement of document (§ 4279.226)

The Agency did not make any substantive changes to this section.

Equal Credit Opportunity Act (§ 4279.227)

The Agency did not make any substantive changes to this section.

Fees (§ 4279.231)

The Agency changed the basis for calculating the guarantee fee and Annual Renewal Fee from “Total Project Costs” to “total Eligible Project Costs.”

Guaranteed loan funding (§ 4279.232)

The Agency simplified and clarified the text describing the maximum amount of loan a Project is eligible for and changed reference from “equity” to “non-Federal sources.”

In cases requesting 90 percent guarantee rate, the Agency restated the requirement for “equity of 40 percent” to “total Federal participation . . . not be greater than 60 percent of total Eligible Project Costs.” The Agency also replaced the requirement of the Collateral coverage ratio with a provision limiting tax credits, carbon credits and other subsidies to 10 percent of the Project's total revenue on an annual basis in the Borrower's base case of financial projections.

Interest rates (§ 4279.233)

The Agency removed the requirement that the Interest rate on the unguaranteed portion of the loan cannot exceed the rate on the guaranteed portion of the loan by more than 500 basis points.

The Agency also modified the section to remove redundancies.

Terms of Loan (§ 4279.234)

The Agency did not make any substantive changes to this section.

Collateral (§ 4279.235)

The Agency restated the Collateral requirement to reflect the revised standards resulting from the Agency's experience administering the Program.

Insurance (§ 4279.243)

The Agency did not make any substantive changes to this section.

Appraisals (§ 4279.244)

The Agency made several changes and clarifications to this section, including:

• A clarification removed reference to a complete self-contained appraisal and now requiring the appraisal must be reported in a manner that summarizes all of the information necessary for the intended users to understand the report and contain all information pertinent to the appraiser's opinions and conclusions.

• Clarifying that documentation is included showing that the appraiser has the necessary experience and competency to appraise the property in question.

• Adding a requirement that appraisals not be more than 1 year old and that a more recent appraisal may be required by the Agency in order to reflect more current market conditions.

• For loan servicing purposes, updating to an appraisal may be acceptable in lieu of a completely new appraisal when the original appraisal is between one and two years old.

• Clarifying the requirements on what appraisals need to conform to.

• Adding a requirement for Lender to submit its technical review of the appraisal.

• For construction Projects, requiring the use of the “as completed” Market Value of the real estate to determine the value of the real estate.

Personal and corporate guarantees (§ 4279.245)

The Agency revised the conditions under which owners may be exempted, in part or in full, from providing guarantees.

Construction planning and performing development (§ 4279.256)

The Agency is clarifying a number of provisions associated with this section including:

• Lenders may contract for services and may rely on certain written materials and other reports provided by independent engineers or other qualified third parties;

• Borrowers must have either 100 percent performance/payment bonds on the contractors or a guarantee from a creditworthy parent entity or an alternative acceptable to the Lender and the Agency and must be secured;

• Lender requirements prior to the disbursement of construction funds (

e.g.,

having on file major drawings and a detailed timetable for the Project, requiring the Borrower to have contingencies in place for handling unforeseen cost overruns);

• The contents of monthly construction reports and quarterly progress reports submitted by the Lender to the Agency; and

• Once construction is completed, final permits and accounting of project funds.

The Agency is requiring Lenders to expeditiously report any problems in Project development to the Agency and to provide the Agency with a copy of the Notice of Completion when construction has been completed.

Borrower responsibilities (§ 4279.259)

The Agency did not make any substantive changes to this section.

Guarantee applications—general (§ 4279.260)

The Agency added a requirement that the Lender or Borrower must submit to the Agency a non-binding letter of intent to apply for loan guarantee not

less than 30 calendar days prior to the application deadline.

The Agency revised the application deadlines from November 1 and May 1 to October 1 and April 1, respectively.

The Agency clarified how application revisions submitted after the application deadline may impact the processing of the application and added “ownership structure” as a type of revision the Lender must report to the Agency.

Application for loan guarantee content (§ 4279.261)

The Agency revised the application process to a two-phase application (see Section IV.B.1). The Agency will use Phase 1 application information to determine Lender, Borrower, Project eligibility, economic and technical feasibility, and application priority score. Phase 2 application materials will be submitted as the Project planning and engineering develops and is finalized.

As noted earlier, the Agency is revising the requirement for a Borrower to obtain an evaluation and either a credit rating or credit assessment for loan requests of $125 million or greater to requiring only Phase 2 applicants to obtain an evaluation and rating for Projects with total Eligible Project Costs of $25 million or greater. In addition to the evaluation and rating from a nationally recognized statistical rating organization, the Agency is also using its own credit evaluation (see § 4279.215(b)) to conduct its “assessment of the credit-worthiness of a security or money market instrument.” The Agency has determined that these provisions are not in conflict with section 939A(b) of Pub. L. 111-203 (Dodd Frank).

The Agency also expanded the application requirements from submittal of the required environmental information to include submittal of an environmental analysis that meets the policies and requirements of the National Environmental Policy Act and the Agency. In addition, the Agency added to the resource assessment content a requirement to address methods and systems to prevent the spread of invasive species.

Guarantee application processing (§ 4279.265)

The Agency made several changes and clarifications to this section, including:

• Making conforming changes to remove reference to the financial metric criteria that are no longer part of the rule.

• Replacing reference to “technical merit” with “technical and economic feasibility” to align with the authorizing statute.

• Adding that the economic feasibility of the Project will be based on the Agency's analysis of the Feasibility Study, the Lender's credit evaluation, and other application materials.

• Deleting the three financial metric criteria for the Borrower and replaced with consideration of the Project's economic feasibility.

• For those Projects utilizing a technology that does not have a history of successful utilization in a Commercial-Scale operation of a Biorefinery that produces an Advanced Biofuel, requiring the evaluation of technical feasibility to include evidence demonstrating 120 days of continuous, steady state production from an integrated demonstration unit.

Guarantee application scoring (§ 4279.266)

The Agency made numerous changes and clarifications to this section, including:

• Revising the scoring criterion whether the Borrower has established a market for the Biofuel and Byproducts to evaluate the degree of commitment of Off-Take Agreements, duration of the Off-Take Agreements, financial strength of the off-take counterparty and dependency on subsidies. Total maximum points are increased from 10 to 20.

• Revising the scoring criterion whether the Borrower is proposing to use a feedstock not previously used in the production of Advanced Biofuels by reducing the total maximum points from 15 to 10.

• Revising the scoring criterion regarding working with cooperatives to simplify distribution of points.

• Revising the scoring criteria regarding the level of financial participation by the Borrower by changing the metric from debt-to-tangible net worth ratio to Federal participation as a percentage of total Eligible Project Costs. Total maximum points are increased from 15 to 20.

• Revising the scoring criteria whether the Borrower can establish that, if adopted, the Biofuels production technology proposed in the application will not have any economically significant negative impacts on existing manufacturing plants or other facilities that use similar feedstocks by reducing the total maximum points from 10 to 5 points.

• Revising the scoring criterion regarding the potential for Rural economic development by adding points if the majority of feedstock to be utilized by the Project, on an annual basis, is harvested from the land and by increasing total maximum points from 10 to 20 points.

• Adding Administrator discretionary points to ensure, to the extent practical, there is diversity in the types of Projects approved for loan guarantees to ensure as wide a range as possible of technologies, products, and approaches are assisted in the Program's portfolio.

• Clarifying that the Agency will award points on the basis of its review and analysis of all application materials.

Selecting guarantee applications (§ 4279.267)

The Agency added text to explain that procedures for selecting Biobased Product Manufacturing Projects will be identified in a

Federal Register

notice.

With the change in the application deadlines and with the implementation of the two-phase application process (see § 4279.260 above), the Agency revised the dates by which the Agency expects to rank applications each year.

The Agency also made conforming changes to accommodate the two-phase application process.

Loan approval and obligating funds (§ 4279.278)

The Agency clarified the procedures on how the Agency will handle Conditional Commitments and any changes thereto, including that changes must be for Good Cause. The Agency is also making clear that the Borrower must comply with all Federal requirements then in effect for receiving Federal assistance.

Transfer of Lenders (§ 4279.279)

The Agency clarified the specifics on how the Agency will handle the transfer of Lenders, which reflects current policy.

Changes in Borrowers (§ 4279.280)

The Agency did not make any changes to this section.

Conditions precedent to issuance of Loan Note Guarantee (§ 4279.281)

The Agency made explicit all of the forms and documents needed at or immediately after loan closing to include the following:

• Copy of the executed Promissory Note(s);

• Copy of the executed Loan Agreement;

• Copy of the executed settlement statement and updated source and use statement including all Project funding;

• Original, executed “Unconditional Guarantee” forms, as appropriate;

• Borrower's loan closing balance sheet; and

• Any other documents required to comply with applicable law or required by the Conditional Commitment or the Agency.

The Agency reduced the number of certifications required and removed redundancy in the certifications being required.

In the certification regarding the Borrower or its officers, directors, stockholders, or other owners having an ownership interest in the Lender, the Agency replaced “substantial financial interest” with “more than a 5 percent ownership interest in the Lender.”

Refusal to execute Loan Note Guarantee (§ 4279.283)

The Agency did not make any substantive changes to this section.

Requirements after Project construction (§ 4279.290)

The Agency made conforming changes to accommodate the inclusion of Renewable Chemicals and Biobased Product Manufacturing.

B. 7 CFR Part 4287, Subpart D

Introduction (§ 4287.301)

The Agency clarified that all loan servicing actions under this subpart, except for certain specific actions, are subject to Agency concurrence and that, whenever Agency approval is required, the servicing action must be for Good Cause.

Definitions (§ 4287.302)

As discussed above, the definitions in § 4279.202 apply for terms applicable to this subpart.

Exception authority (§ 4287.303)

The Agency did not make any changes to this section.

Appeals (§ 4287.306)

The Agency made edits to clarify what is appealable versus reviewable. In addition, the Agency expanded the provisions to reflect current practice.

Servicing (§ 4287.307)

The Agency made several changes and clarifications to this section, including:

• Clarifying that while the Lender may contract with third parties and rely on information from qualified third parties that the Lender is solely responsible for servicing the loan.

• Adding additional examples of servicing responsibilities.

• Requiring Lenders to submit monthly Default reports.

• Revising the timeframes for submitting financial statements.

• Requiring the written summary provided by the Lender to include any violations of loan covenants and covenant waivers proposed by the Lender and any routine servicing actions performed.

• Updating the audit requirements to conform to 2 CFR part 200, subpart F and including Indian Tribes as being subject to the audit requirements.

• Clarifying, as a conforming change, that the guarantee is unenforceable under either negligent loan servicing or grossly negligent loan servicing as established in the Loan Note Guarantee.

Interest rate changes (§ 4287.312)

All increases in interest rates must be for Good Cause. The Agency did not make any other substantive changes to this section.

Release of Collateral (§ 4287.313)

The Agency made several changes and clarifications to this section, including:

• Clarifying that working assets can be released for routine business purposes without prior concurrence of the Agency when the loan is in good standing.

• Summarizing appraisal requirements.

• Requiring justifications and conditions for release of Collateral to include: applying the Collateral sold to Borrower debt, using net proceeds to purchase other Collateral of equal or greater value, and applying the proceeds to the business operations. Assurance that the release of Collateral is essential for the success of the business must be provided by the Lender.

Subordination of Lien Position (§ 4287.323)

The Agency made several changes to this section, including:

• Removing the limitation concerning the Subordination to a revolving line of credit cannot exceed one year.

• Replacing the requirement for adequate consideration for the Subordination with the requirement that the Subordination must be in the best financial interest of the Agency.

• Removing the provision prohibiting a Subordination from extending beyond the term of the guaranteed loan because a Subordination deals solely with the lien position on joint Collateral and does not address the term of the guaranteed loan.

• Requiring the Lender's Subordination proposal to include a financial analysis of the servicing action and be fully supported by current financial statements.

• Allowing a Subordination on accounts receivables and inventory to a line of credit.

• Providing the Agency the discretion to require an appraisal of Collateral assuring proper Collateral coverage.

• Providing the Agency the ability to deny Subordinations of the Lender's lien position for good cause.

Alterations of Loan Instruments (§ 4287.324)

The Agency did not make any changes to this section.

Transfer and Assumption (§ 4287.334)

The Agency made several changes and clarifications to this section, including:

• Clarifying that a Transfer and Assumption of the Borrower's operation can take place either before or after the loan goes into liquidation.

• Prohibiting a Transfer and Assumption if Borrower Collateral has been purchased through foreclosure or the Borrower has conveyed title to the Lender.

• Providing Agency discretion as to when personal or corporate guarantees are required and whether the guarantees will be full or partial.

• Requiring that any new loan terms must also be for Good Cause.

• Adding a provision that the Agency will not approve any change in terms that results in an increase in the cost of the loan guarantee, except for good cause and only if the change otherwise conforms to applicable regulations.

• As one of the conditions for a release of liability, requiring that all of the loan Collateral is transferred to the transferee if the transferee is assuming the full amount of loan.

• If the proposed Transfer and Assumption is for less than the full amount of the Agency guaranteed loan, requiring an appraisal and limiting the appraised value of the Collateral to not less than the amount of the assumption.

• Requiring a legal opinion to accompany each request for a Transfer and Assumption.

• Prohibiting the issuance of new Promissory Notes to the transferee.

• Requiring a legal opinion that, upon its execution, the Transfer and Assumption is completed, valid, and enforceable and a certification that the Transfer and Assumption is consistent with the Agency's approved conditions for the transfer.

• Adding a requirement that, when the transfer and transferee are Affiliates or related parties, the Transfer and Assumption must be to an eligible Borrower and must continue the Project for eligible purposes as well as be for the full amount of the guaranteed loan indebtedness.

• Providing a description of the calculation of the transfer fee.

• Removing, with regard to change in control of the Borrower, reference to “change of control means the merger of the borrower, sale of all or substantially all of the assets of the borrower, or the sale of more than 25 percent of the stock or other equity interest of either the borrower or its corporate parent.”

Substitution of Lender (§ 4287.335)

The Agency made several changes and clarifications to this section, including:

• Requiring the Lender to transfer the original Promissory Note and loan security documents to the new Lender, who must agree to the current loan terms.

• Adding additional procedures to be followed when there is a substitution of Lender.

• Requiring the request for a substitute Lender to be from the Borrower, the proposed substitute, and the original Lender if still in existence.

• Clarifying that where a Lender has been merged with or acquired by another Lender, the new Lender must execute a new Lender's Agreement unless the new Lender already has a valid Lender's Agreement with the Agency.

Lender Failure (§ 4287.336)

The Agency added this new section to address procedures when a Lender fails.

The acquiring Lender must take such action that a reasonable Lender would take if it did not have a Loan Note Guarantee.

Default by Borrower (§ 4287.345)

The Agency made several changes and clarifications to this section, including:

• Clarifying Lender duties in the event of a loss, including acting reasonably, working with the Borrower to cure the Default, and minimizing potential loss in the case of liquidation.

• Requiring monthly (rather than every other month) reports while the loan is still in Default.

• Removing reference to subsequent loan guarantees as a servicing option.

• Prohibiting capitalization of accrued Interest.

• Allowing balloon payments as a servicing option under certain conditions.

• Prohibiting the Lender from claiming Default or penalty Interest, late payment fees, and Interest-on-Interest when there is a loss or repurchase.

• Prohibiting debt write-down by the Lender where the Lender will continue with the Project loan, except as directed or ordered by a final court order.

• In instances of a loss, not allowing the guarantee to cover any accrued Interest in accordance with the Interest Termination Date as discussed earlier under § 4279.220.

Protective Advances (§ 4287.356)

The Agency made several changes and clarifications to this section, including:

• Clarifying that Protective Advance claims are paid only at the time of the final loss payment.

• Not allowing the guarantee to cover Interest on the Protective Advance accruing after the Interest Termination Date as discussed earlier under § 4279.220.

• Revising the cumulative total of Protective Advances for which Agency authorization is required from “$100,000” to “$200,000 or 10 percent of the outstanding principal, whichever is less.”

Liquidation (§ 4287.357)

The Agency made a number of changes and clarifications to this section, including:

• Clarifying that when the decision to liquidate is made, if any portion of the loan has been sold or assigned, provisions will be made for repurchase.

• Explaining more clearly how the Agency will handle the Lender's liquidation plan, including its approval and the resolution of any Agency concerns.

• Requiring the Lender to take such actions that a reasonable Lender would take without a guarantee and to keep the Agency informed of such actions.

• Allowing a liquidation plan to be submitted with an estimate of Collateral value with Agency approval subject to the results of the final liquidation appraisal.

• Requiring the Lender to notify the Agency of any changes and updates (

e.g.,

change in value based on the liquidation appraisal) in the liquidation plan.

• Clarifying provisions regarding protective bids.

• Explaining when Agency approval is or is not required for acceleration.

• Limiting the accrual of Interest in accordance in the Interest Termination Date as discussed earlier under § 4279.220.

• Explaining more clearly the process for compromise settlements.

• Spelling out the responsibilities of the Lender during litigation proceedings.

Determination of Loss and Payment (§ 4287.358)

The Agency made a number of changes and clarifications to this section, including:

• Prohibiting the estimated loss payment from being used to reduce the unpaid balance owed by the Borrower.

• Revising the time period that the Agency will not guarantee accrued Interest in accordance with the Interest Termination Date as discussed earlier under § 4279.220.

• Allowing the Agency to consider a compromise settlement of Federal Debt after it has processed a final “Guaranteed Loan Report of Loss” and issued a 60 day due process letter.

• Prohibiting the sharing of any funds collected on Federal Debt with the Lender.

• Expanding the provision for the consideration of Liquidation Expenses to include:

○ Prohibiting the Lender from claiming any Liquidation Expenses in excess of liquidation proceeds.

○ Requiring Agency approval of any changes to the Liquidation Expenses that exceed 10 percent of the amount proposed in the liquidation plan.

○ Sharing equally between the Lender and Agency reasonable attorney/legal expense.

○ Prohibiting the guarantee fee and annual renewal fee as an authorized Liquidation Expense.

Future Recovery (§ 4287.369)

The Agency revised this section to require the Lender, after the final loss claim has been paid, to use reasonable efforts to attempt collection from any party still liable on the guaranteed loan. Any net proceeds from that effort must be split Pro Rata between the Lender and the Agency based on the original amount of the loan guarantee.

Bankruptcy (§ 4287.370)

The Agency made a number of changes and clarifications to this section, including:

• Requiring Lenders to monitor bankruptcy plans to determine Borrower compliance and, if the Borrower fails to comply, pursue appropriate relief.

• Requiring Lenders to submit a Default status report within 15 days after the date the Borrower Defaults and every 30 days thereafter until the Default is resolved or a final loss claim is paid by the Agency. The Default status report will be used to inform the Agency of the bankruptcy filing, the plan confirmation date, when the plan is complete, and when the Borrower is not in compliance with the plan.

• Requiring the Lender to request a bankruptcy loss payment of the guaranteed portion of the accrued Interest and principal discharged by the court for all bankruptcies when all or a portion of the debt has been discharged.

• Allowing only one bankruptcy loss payment during the bankruptcy proceeding unless the Bankruptcy Court approves a subsequent change to the bankruptcy plan.

• Requiring the Lender to use the Guaranteed Loan Report of Loss form to request a bankruptcy loss payment or to revise any bankruptcy loss payments.

• Revising when Protective Advances can be payable under the guarantee in the final loss claim and what kinds of expenses can be considered Liquidation Expenses.

• Expanding the types of expenses incurred during bankruptcy proceedings beyond just legal expenses and how those expenses will be treated.

Termination of Guarantee (§ 4287.380)

The Agency did not make any substantive changes to this section.

VII. Invitation To Comment

RD encourages interested persons and organizations to submit written comments, which may include data, suggestions, or opinions. Commenters should include their name, address, and other appropriate contact information. If persons with disabilities (

e.g.,

deaf, hard of hearing, or have speech difficulties) require an alternative means of receiving this notice (

e.g.,

Braille, large print, audiotape) in order to submit comments, please contact USDA's TARGET Center at (202) 720-2600 (voice and TDD).

Comments may be submitted by any of the means identified in the

ADDRESSES

section. If comments are submitted by mail or hand delivery, they should be submitted in an unbound format, no larger than letter-size, suitable for copying and electronic filing. If confirmation of receipt is requested, a stamped, self-addressed, postcard or envelope should be enclosed. RD will consider all comments received during the comment period and will address comments in the preamble to the final rule.

List of Subjects for 7 CFR Parts 4279 and 4287

Loan programs—Business and industry, Loan programs—Rural development assistance, Economic development, Energy, Direct loan programs, Grant programs, Guaranteed loan programs, Renewable energy systems, Energy efficiency improvements, Rural areas.

For the reasons set forth in the preamble, parts 4279 and 4287 of title 7 of the Code of Federal Regulations are amended as follows:

PART 4279—GUARANTEED LOANMAKING

1. The authority citation for part 4279 is revised to read as follows:

Authority:

5 U.S.C. 301; and 7 U.S.C. 1989.

2. Revise subpart C to read as follows:

Subpart C—Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance Loans

General

Sec.

4279.201

Purpose and scope.

4279.202

Definitions and abbreviations.

4279.203

Exception authority.

4279.204

Appeals.

4279.205

Prohibition under Agency programs.

4279.206

Agency representation.

4279.207

[Reserved]

Eligibility Requirements

4279.208

Lender eligibility requirements.

4279.209

Borrower eligibility requirements.

4279.210

Project eligibility requirements.

4279.211-4279.213

[Reserved]

Lender Functions and Responsibilities

4279.214

General functions and responsibilities.

4279.215

Credit evaluation.

4279.216

Environmental responsibilities.

4279.217

Oversight and monitoring.

4279.218-4279.219

[Reserved]

Conditions of Guarantee

4279.220

General conditions of guarantee.

4279.221

Rights and liabilities.

4279.222

Payments.

4279.223

Sale or assignment of guaranteed loan.

4279.224

Minimum retention.

4279.225

Repurchase from Holder.

4279.226

Replacement of document.

4279.227

Equal Credit Opportunity Act.

4279.228-4279.230

[Reserved]

Loan Processing

4279.231

Fees.

4279.232

Guaranteed loan funding.

4279.233

Interest rates.

4279.234

Terms of loan.

4279.235

Collateral.

4279.236-4279.242

[Reserved]

4279.243

Insurance.

4279.244

Appraisals.

4279.245

Personal and corporate guarantees.

4279.246-4279.255

[Reserved]

4279.256

Construction planning and performing development.

4279.257-4279.258

[Reserved]

4279.259

Borrower responsibilities.

Applications

4279.260

Guarantee applications—general.

4279.261

Application for loan guarantee content.

4279.262-4279.264

[Reserved]

4279.265

Guarantee application processing.

4279.266

Guarantee application scoring.

4279.267

Selecting guarantee applications.

4279.268-4279.277

[Reserved]

4279.278

Loan approval and obligating funds.

4279.279

Transfer of Lenders.

4279.280

Changes in Borrowers.

4279.281

Conditions precedent to issuance of Loan Note Guarantee.

4279.282

[Reserved]

4279.283

Refusal to execute Loan Note Guarantee.

4279.284-4279.289

[Reserved]

4279.290

Requirements after Project construction.

4279.291-4279.299

[Reserved]

4279.300

OMB control number.

Subpart C—Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance Loans

General

§ 4279.201

Purpose and scope.

The purpose of the Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Program is to assist in the development of new and emerging technologies for the development of Advanced Biofuels, Renewable Chemicals, and Biobased Product Manufacturing. This is achieved through guarantees for loans made to fund the development, construction, and Retrofitting of Commercial-Scale Biorefineries using Eligible Technology and of Biobased Product Manufacturing facilities that use Technologically New Commercial-Scale processing and manufacturing equipment and required facilities to convert Renewable Chemicals and other biobased outputs of Biorefineries into end-user products on a Commercial Scale.

(a) This subpart and subpart D of part 4287 of this chapter contain the regulations for this Program.

(b) The Lender is responsible for ascertaining that all requirements for making, securing, servicing, and collecting the loan are complied with.

(c) Whether specifically stated or not, whenever Agency approval is required, it must be in writing.

(d) Copies of all forms, regulations, and instructions referenced in this subpart are available in any Agency office and from the USDA Rural Development Web site at

http://www.rd.usda.gov/programs-services/biorefinery-assistance-program

. Whenever a form is designated in this subpart, it is initially capitalized and its reference includes predecessor and successor forms, if applicable.

§ 4279.202

Definitions and abbreviations.

Terms used in this subpart are defined in this section. Terms used in this subpart that have the same meaning

as the terms defined in this section have been capitalized in this subpart.

Administrator.

The Administrator of Rural Business-Cooperative Service within the Rural Development mission area of the U.S. Department of Agriculture.

Advanced biofuel.

Fuel derived from Renewable Biomass, other than corn kernel starch, to include:

(1) Biofuel derived from cellulose, hemicellulose, or lignin;

(2) Biofuel derived from sugar and starch (other than ethanol derived from corn kernel starch);

(3) Biofuel derived from waste material, including crop residue, other vegetative waste material, animal waste, food waste, and yard waste;

(4) Diesel-equivalent fuel derived from Renewable Biomass, including vegetable oil and animal fat;

(5) Biogas (including landfill gas and sewage waste treatment gas) produced through the conversion of organic matter from Renewable Biomass;

(6) Butanol or other alcohols produced through the conversion of organic matter from Renewable Biomass; and

(7) Other fuel derived from cellulosic biomass.

Affiliate.

An entity that is related to another entity by owning shares or having an interest in the entity, by common ownership, or by any means of control.

Agency.

The Rural Business-Cooperative Service or successor Agency assigned by the Secretary of Agriculture to administer the Program. References to the National or State Office should be read as prefaced by “Agency” or “Rural Development” as applicable.

Agricultural producer.

An individual or entity directly engaged in the production of agricultural products, including crops (including farming); livestock (including ranching); forestry products; hydroponics; nursery stock; or aquaculture, whereby 50 percent or greater of their gross income is derived from the operations.

Annual renewal fee.

A fee that is paid once a year by the Lender and is required to maintain the enforceability of the Loan Note Guarantee.

Arm's length transaction.

A transaction between ready, willing, and able disinterested parties that are not affiliated with or related to each other and have no security, monetary, or stockholder interest in each other.

Assignment Guarantee Agreement.

Form RD 4279-6, “Assignment Guarantee Agreement,” is the signed agreement between the Agency, the Lender, and the Holder containing the terms and conditions of an assignment of a guaranteed portion of a loan, using the single Promissory Note system.

Association of Agricultural Producers.

An organization that represents Agricultural Producers and whose mission includes working on behalf of such producers and the majority of whose membership and board of directors is comprised of Agricultural Producers.

BAP.

Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance Program.

Biobased product.

A product determined by the Secretary to be a commercial or industrial product (other than food or feed) that is either:

(1) Composed, in whole or in significant part, of biological products, including renewable domestic agricultural materials and forestry materials; or

(2) An intermediate ingredient or feedstock.

Biobased product manufacturing.

The use of Technologically New Commercial-Scale processing and manufacturing equipment and required facilities to convert Renewable Chemicals and other biobased outputs of Biorefineries into end-user products on a Commercial Scale.

Biofuel.

A fuel derived from Renewable Biomass.

Biogas.

Renewable Biomass converted to gaseous fuel.

Biorefinery.

A facility (including equipment and processes) that converts Renewable Biomass into Biofuels and Biobased Products and may produce electricity.

Bond.

A form of debt security in which the authorized issuer (Borrower) owes the Bond holder (Lender) a debt and is obligated to repay the principal and Interest (coupon) at a later date(s) (maturity). An explanation of the type of Bond and other Bond stipulations must be attached to the Bond issuance.

Borrower.

The Person that borrows, or seeks to borrow, money from the Lender, including any party liable for the loan except for guarantors.

Byproduct.

An incidental or secondary product generated under normal operations of the proposed Project that can be reasonably measured and monitored other than: Advanced Biofuel, Program-eligible Biobased Products including Renewable Chemicals, and Program-eligible end-user products produced by Biobased Product Manufacturing facilities. Byproducts may or may not have a readily identifiable commercial use or value.

Calendar quarter.

Four three-month periods in each calendar year as follows:

(1) Quarter 1 begins on January 1 and ends on March 31;

(2) Quarter 2 begins on April 1 and ends on June 30;

(3) Quarter 3 begins on July 1 and ends on September 30; and

(4) Quarter 4 begins on October 1 and ends on December 31.

Collateral.

The asset(s) pledged by the Borrower to secure the loan.

Commercial-scale (commercial scale).

An operation is considered to be a Commercial-Scale operation if it demonstrates that its sole or chief emphasis is on salability and profit and:

(1) Its revenue will be sufficient to recover the full cost of the Project over its expected life and result in an anticipated annual rate of return sufficient to encourage investors or Lenders to provide funding for the Project;

(2) It will be able to operate profitably without public and private sector subsidies upon completion of construction (volumetric excise tax is not included as a subsidy);

(3) Contracts for feedstock are adequate to address proposed off-take; and

(4) It has the ability to achieve market entry, suitable infrastructure to transport product to its market is available, and the technology and related products are generally competitive in the market.

Conditional Commitment.

Form RD 4279-3, “Conditional Commitment,” is the Agency's notice to the Lender that the loan guarantee it has requested is approved subject to the completion of all conditions and requirements set forth by the Agency and outlined in the attachment to the Conditional Commitment.

Conflict of interest.

A situation in which a Person has competing personal, professional, or financial interests that prevents the Person from acting impartially.

Default.

The condition that exists when a Borrower is not in compliance with the Promissory Note, the Loan Agreement, security documents, or other documents evidencing the loan. Default could be a monetary or non-monetary Default.

Deficiency judgment.

A monetary judgment rendered by a court of competent jurisdiction after foreclosure and liquidation of all Collateral securing the loan.

Delinquency.

A loan for which a scheduled loan payment is more than 30 days past due and cannot be cured within 30 days.

Eligible project costs.

Those expenses approved by the Agency for the Project as set forth in § 4279.210(d) and do not

include the costs set forth in § 4279.210(e).

Eligible technology.

The term “Eligible technology” means, as determined by the Secretary:

(1) A technology that is being adopted in a viable Commercial-Scale operation of a Biorefinery that produces an Advanced Biofuel; or

(2) A technology not described in paragraph (1) of this definition that has been demonstrated to have Technical and Economic Potential for commercial application in a Biorefinery that produces an Advanced Biofuel.

Fair market value.

The price that could reasonably be expected for an asset in an Arm's-Length Transaction between a willing buyer and a willing seller under ordinary economic and business conditions.

Farm cooperative.

A business owned and controlled by Agricultural Producers that is incorporated, or otherwise recognized by the State in which it operates, as a cooperatively-operated business.

Farmer Cooperative Organization.

An organization whose membership is composed of Farm Cooperatives.

Feasibility study.

An analysis by an independent qualified consultant or consultants of the economic, market, technical, financial, and management feasibility of a proposed Project or business in terms of its expectation for success.

Federal debt.

Debt owed to the Federal government that is subject to collection under the Debt Collection Improvement Act of 1996, 31 U.S.C. 3701

et seq.

Once the Agency determines a debt is Federal Debt and provides notice to the Lender, that Federal Debt is excluded from Future Recovery.

Future recovery.

Funds anticipated to be collected by the Lender after a final loss claim is processed.

Good cause.

A justification representing a reasonable approach given:

(1) The reasonably available alternatives;

(2) All known relevant factors;

(3) Program requirements; and

(4) The best interests of the government. Good cause must be approved by the Agency. Without prior approval by the Agency, alternatives that require the Agency to increase its guarantee, in either the Conditional Commitment or Loan Note Guarantee (including an increase of its subsidy costs under the Credit Reform Act of 1990), or provide additional assistance, will not be considered reasonable available alternatives under paragraph (1) of this definition or in the best interests of the government under paragraph (4) of this definition.

Grossly negligent loan origination.

A serious carelessness in originating the loan which is so great as to appear to be conscious. The term includes not only the concept of a failure to act, but also not acting in a timely manner.

Grossly negligent loan servicing.

A serious carelessness in servicing the loan which is so great as to appear to be conscious. The term includes not only the concept of a failure to act, but also not acting in a timely manner.

Guaranteed Loan Report of Loss.

Form RD 449-30, “Guaranteed Loan Report of Loss,” used by Lenders when reporting a financial loss under an Agency guarantee.

Holder.

A Person, other than the Lender, who owns all or part of the guaranteed portion of the loan with no servicing responsibilities.

Immediate family(ies).

Individuals who live in the same household or who are closely related by blood, marriage, or adoption, such as a spouse, domestic partner, parent, child, sibling, aunt, uncle, grandparent, grandchild, niece, nephew, or cousin.

Indian tribe.

This term has the meaning as defined in 25 U.S.C. 450b.

In-house expenses.

Expenses associated with activities that are routinely the responsibility of a Lender's internal staff or its agents. In-house expenses include, but are not limited to, employees' salaries, staff lawyers, travel, and overhead.

Institution of higher education.

This term has the meaning as defined in 20 U.S.C. 1002(a).

Interest.

A fee paid by a Borrower to a Lender as a form of compensation for the use of money. When money is borrowed, Interest is typically paid as a fee over a certain period of time (typically months or years) to the Lender as percentage of the principal amount owed. The term Interest does not include Default or penalty Interest or late payment fees or charges.

Interest Termination Date.

The date on which no further interest will be payable under the Loan Note Guarantee.

(1) If the Lender owns all or a portion of the guaranteed interest in the guaranteed loan or makes a Protective Advance, then the Loan Note Guarantee will not cover Interest to the Lender accruing after 90 days from the most recent Delinquency effective date as reported by the Lender.

(2) If the guaranteed loan has a Holder(s), the Lender, or the Agency, at its sole discretion, will issue an interest termination letter to the Holder(s) establishing the termination date for Interest accrual. The Loan Note Guarantee will not cover Interest to the Holder(s) accruing after the greater of:

(i) 90 days from the date of the most recent Delinquency effective date as reported by the Lender or

(ii) 30 days from the date of the interest termination letter.

Lender.

The entity approved, or seeking to be approved, by the Agency to make, service, and collect the Agency guaranteed loan that is subject to this subpart.

Lender's Agreement.

Form RD 4279-4, “Lender's Agreement,” or predecessor form, between the Agency and the Lender setting forth the Lender's loan responsibilities.

Liquidation expenses.

Costs directly associated with the liquidation of Collateral, including preparing Collateral for sale (

e.g.,

repairs and transport) and conducting the sale (

e.g.,

advertising, public notices, auctioneer expenses, and foreclosure fees). Liquidation Expenses do not include In-House Expenses. Legal/attorney fees are considered Liquidation Expenses provided that the fees are reasonable, as determined by the Agency, and cover legal issues pertaining to the liquidation that could not be properly handled by the Lender and its in-house counsel.

Loan agreement.

The agreement between the Borrower and Lender containing the terms and conditions of the loan and the responsibilities of the Borrower and Lender.

Loan classification.

The process by which loans are examined and categorized by degree of potential loss in the event of Default.

Loan Note Guarantee.

Form RD 4279-5, “Loan Note Guarantee,” or predecessor form, issued and executed by the Agency containing the terms and conditions of the guarantee.

Loan packager.

A Person, other than the applicant Borrower or Lender, that prepares a loan application package.

Loan service provider.

A Person, other than the Lender of record, that provides loan servicing activities to the Lender.

Local government.

A county, municipality, town, township, village, or other unit of general government below the State level, or Indian Tribe governments.

Local owner.

An individual who owns any portion of an eligible Biorefinery and whose primary residence is located within a certain distance from the Biorefinery as specified by the Agency in a Notice published in the

Federal Register

.

Market value.

The amount for which a property will sell for its highest and best use at a voluntary sale in an Arm's Length Transaction.

Material adverse change.

Any change in circumstance associated with a guaranteed loan, including the Borrower's financial condition or Collateral that could be reasonably expected to jeopardize loan performance.

NAD.

National Appeals Division, or successor agency, in the United States Department of Agriculture.

Negligent Loan Origination.

The failure to perform those actions which a reasonably prudent lender would perform in originating its own portfolio of loans that are not guaranteed. The term includes not only the concept of a failure to act but also acting in a manner contrary to the manner in which a reasonably prudent lender would act.

Negligent Loan Servicing.

The failure to perform those services which a reasonably prudent lender would perform in servicing (including liquidation of) 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 timely manner, or acting in a manner contrary to the manner in which a reasonably prudent lender would act.

Off-take agreement.

The terms and conditions governing the sale and transportation of Biofuels, Biobased Products including Renewable Chemicals, Biobased Product Manufacturing end-user products, and electricity produced by the Borrower to another party.

Parity.

A lien position whereby two or more Lenders share a security interest of equal priority in Collateral.

Participate.

Sale of an interest in a loan by the lead Lender to one or more Lenders wherein the lead Lender retains the Promissory Note, Collateral securing the Promissory Note, and all responsibility for managing and servicing the loan. Participants are dependent upon the lead Lender for protection of their interests in the loan.

Person.

An individual or entity.

Program.

Biorefinery Renewable Chemical, and Biobased Product Manufacturing Assistance Program often abbreviated as BAP.

Project.

The facility or portion of a facility receiving funding under this subpart.

Pro rata.

On a proportional basis.

Promissory note.

Evidence of debt with stipulated repayment terms. “Note” or “Promissory Note” shall also be construed to include “Bond” or other evidence of debt, where appropriate.

Protective advance.

An advance made by the Lender for the purpose of preserving and protecting the Collateral where the Borrower has failed to, and will not or cannot, meet its obligations to protect or preserve Collateral. Protective advances include, but are not limited to, advances affecting the Collateral made for property taxes, rent, hazard and flood insurance premiums, and annual assessments. Legal/attorney fees are not a Protective Advance. Holders do not have an interest in Protective Advances.

Public body.

A municipality, county, or other political subdivision of a State; a special purpose district; or an Indian Tribe on a Federal or State reservation or other Federally-recognized Indian Tribe; or an organization controlled by any of the above. A Local Government would also be a Public Body.

Renewable biomass.

(1) Materials, pre-commercial thinnings, or invasive species from National Forest System land or public lands (as defined in section 103 of the Federal Land Policy and Management Act of 1976 (43 U.S.C. 1702)) that:

(i) Are byproducts of preventive treatments that are removed to reduce hazardous fuels; to reduce or contain disease or insect infestation; or to restore ecosystem health;

(ii) Would not otherwise be used for higher-value products; and

(iii) Are harvested in accordance with applicable law and land management plans and the requirements for old-growth maintenance, restoration, and management direction of paragraphs (2), (3), and (4) of subsection (e) of section 102 of the Healthy Forests Restoration Act of 2003 (16 U.S.C. 6512) and large-tree retention of subsection (f) of section 102; or

(2) Any organic matter that is available on a renewable or recurring basis from non-Federal land or land belonging to an Indian or Indian Tribe that is held in trust by the United States or subject to a restriction against alienation imposed by the United States, including:

(i) Renewable plant material, including feed grains; other agricultural commodities; other plants and trees; and algae; and

(ii) Waste material, including crop residue; other vegetative waste material (including wood waste and wood residues); animal waste and byproducts (including fats, oils, greases, and manure); and food waste and yard waste.

Renewable chemical.

A monomer, polymer, plastic, formulated product, or chemical substance produced from Renewable Biomass.

Retrofitting.

The modification of a building or equipment to incorporate functions not included in the original design.

Rural Development.

The mission area of USDA that is comprised of the Rural Business-Cooperative Service, Rural Housing Service, and Rural Utilities Service and is under the policy direction and operational oversight of the Under Secretary for Rural Development.

Rural or rural area.

See 7 U.S.C. 1991(a)(13)(A) and (D)

et seq.

Secretary.

The Secretary of the Department of the Agriculture.

Semi-work scale.

A facility operating on a limited scale to provide final tests of a product or process.

Spreadsheet.

A table containing data from a series of financial statements of a business over a period of time. Financial statement analysis normally contains Spreadsheets for balance sheet and income statement items and includes a cash flow analysis and commonly used ratios. The Spreadsheets enable a reviewer to easily scan the data, spot trends, and make comparisons.

State.

Any of the 50 States of the U.S., the Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, the Republic of Palau, the Federated States of Micronesia, and the Republic of the Marshall Islands.

Subordination.

The reduction of the Lender's lien priority on certain assets pledged to secure payment of the guaranteed loan to a position junior to, or on Parity with, the lien position of another loan in order for the Borrower to obtain additional financing, not guaranteed by the Agency, from the Lender or a third party.

Technologically New.

New or significantly improved equipment, process or production method to deliver a product, or adoption of equipment, process or production method to deliver a new or significantly improved product, of which the first Commercial-Scale use in the United States is within the last five years and is used in not more than three Commercial-Scale facilities in the United States.

Total project costs.

The sum of all costs associated with a completed Project.

Transfer and assumption.

The conveyance by a Borrower to an assuming Borrower of the assets, Collateral, and liabilities of the loan in return for the assuming Borrower's binding promise to pay the outstanding loan debt approved by the Agency.

USDA Lender Interactive Network Connection (LINC).

The portal Web site currently at

https://usdalinc.sc.egov.usda.gov/

used by Lenders to update loan data in the

Agency's Guaranteed Loan System. Current capabilities include loan closing and status reporting.

Well capitalized.

Federal Deposit Insurance Corporation (FDIC) requirements used to determine if a lending institution has enough capital on hand to withstand negative effects in the market, and which the Agency uses to determine Lender eligibility. The criteria are specified in the Federal Deposit Insurance Act, and are currently at 12 CFR 325.103, or subsequent regulation.

Working capital.

Current assets available to support a business's operations. Working Capital is calculated as current assets less current liabilities.

§ 4279.203

Exception authority.

The Administrator may, with the concurrence of the Secretary of Agriculture, make an exception, on a case-by-case basis, to any requirement or provision of this subpart that is not inconsistent with any authorizing statute or applicable law, if the Administrator determines that application of the requirement or provision would adversely affect the Federal government's interest.

§ 4279.204

Appeals.

Borrowers, Lenders, and Holders have appeal or review rights for adverse Agency decisions made under this subpart. Adverse programmatic decisions based on clear and objective statutory or regulatory requirements are not appealable; however, such decisions are reviewable for appealability by the National Appeals Division (NAD). The Borrower, Lender, and Holder can appeal any Agency decision that directly and adversely impacts them. For an adverse decision that impacts the Borrower, the Lender and Borrower must jointly execute a written request for appeal for an alleged adverse decision made by the Agency. An adverse decision that only impacts the Lender may be appealed by the Lender only. An adverse decision that only impacts the Holder may be appealed by the Holder only. A decision by a Lender adverse to the interest of the Borrower is not a decision by the Agency, whether or not concurred in by the Agency. Appeals will be conducted by NAD and will be handled in accordance with 7 CFR part 11.

§ 4279.205

Prohibition under Agency programs.

(a) No loan guaranteed by the Agency under this subpart will be conditioned on any requirement that the recipient(s) of such assistance accept or receive electric service from any particular utility, supplier, or cooperative.

(b) No loan guaranteed by the Agency may be made with the proceeds of any obligation the Interest on which is excludable from income under 26 U.S.C. 103 or a successor statute. Funds generated through the issuance of tax-exempt obligations may neither be used to purchase the guaranteed portion of any Agency guaranteed loan nor may an Agency guaranteed loan serve as Collateral for a tax-exempt issue. The Agency may guarantee a loan for a Project which involves tax-exempt financing only when the guaranteed loan funds are used to finance a part of the Project that is separate and distinct from the part which is financed by the tax-exempt obligation, and the guaranteed loan has at least a Parity security position with the tax-exempt obligation.

(c) The Agency may not issue a guarantee for a loan where there may be, directly or indirectly, a Conflict of Interest or an appearance of a Conflict of Interest involving any action by the Agency.

(d) The Agency may not guarantee lease payments.

(e) The Agency may not guarantee loans made by other Federal agencies.

§ 4279.206

Agency representation.

Notwithstanding any other provision of this subpart and 7 CFR part 4287, subpart D, the Agency reserves the right to be represented by the U.S. Department of Justice in any litigation where the Agency is named as a party.

§ 4279.207

[Reserved]

Eligibility Requirements

§ 4279.208

Lender eligibility requirements.

(a) An eligible Lender is any Federal or State chartered bank, Farm Credit Bank, other Farm Credit System institution with direct lending authority, and Bank for Cooperatives. These entities must be subject to credit examination and supervision by either an agency of the United States or a State. Credit unions subject to credit examination and supervision by either the National Credit Union Administration or a State agency are eligible Lenders. The National Rural Utilities Cooperative Finance Corporation is also an eligible Lender. Savings and loan associations, mortgage companies, insurance companies, and other lenders not meeting the above criteria are not eligible.

(b) The Lender must demonstrate that it meets the FDIC definition of Well Capitalized at the time of application and at time of issuance of the Loan Note Guarantee. This information may be identified in FDIC Call Reports and Thrift Financial Reports. If the information is not identified in the Call Reports or Thrift Financial Reports, the Lender will be required to calculate its levels and provide them to the Agency.

(c) The Lender must not be debarred or suspended by the Federal government.

(d) If the Lender is under a cease-and-desist order, or similar constraint, from a Federal or State agency, the Lender must inform the Agency. The Agency will evaluate the Lender's eligibility on a case-by-case basis given the risk of loss posed by the cease-and-desist order or similar constraint, as applicable.

(e) The Agency will only approve loan guarantees for Lenders with adequate experience and expertise, from similar projects, to make, secure, service, and collect loans approved under this subpart.

§ 4279.209

Borrower eligibility requirements.

(a)

Eligible entities.

To be eligible, a Borrower must meet the requirements specified in paragraphs (a)(1) and (2) of this section.

(1)

Type of Borrower.

A Borrower must be an individual; an entity; an Indian Tribe; or a unit of State or Local Government, including a corporation; a Farm Cooperative; a Farmer Cooperative Organization; an Association of Agricultural Producers; a National Laboratory; an Institution of Higher Education; a rural electric cooperative; a public power entity; or a consortium of any of the above entities.

(2)

Legal authority and responsibility.

Each Borrower must have, or obtain before loan closing, the legal authority necessary to construct, operate, and maintain the proposed Project and services and to obtain, give security for, and repay the proposed loan.

(b)

Ineligible entities.

A Borrower will be considered ineligible for a guarantee if the Borrower, any owner with more than 20 percent ownership interest in the Borrower, or any owner with more than 3 percent ownership interest in the Borrower if there is no owner with more than 20 percent ownership interest in the Borrower:

(1) Has an outstanding judgment obtained by the U.S. in a Federal Court (other than U.S. Tax Court);

(2) Is delinquent on the payment of Federal income taxes;

(3) Is delinquent on a Federal Debt; or

(4) Is debarred or suspended from receiving Federal assistance.

§ 4279.210

Project eligibility requirements.

(a) The Project must be located in a State.

(b) The Project must be for either:

(1) The development, construction, and Retrofitting of Technologically New Commercial-Scale processing and manufacturing equipment and required facilities that will be used to convert Renewable Chemicals and other biobased outputs of Biorefineries into end-user products on a Commercial Scale; or

(2) The development, construction, or Retrofitting of a Commercial-Scale Biorefinery using Eligible Technology.

(c) The Borrower and other principals involved in the Project must make a significant equity investment in the Project in the form of cash contribution. Equity does not include loans to the Project. The Agency will evaluate the adequacy of equity in its credit evaluation in accordance with § 4279.215(b).

(d) Eligible Project Costs are only those costs associated with the items listed in paragraphs (d)(1) through (9) of this section, as long as the items are assets owned by the Borrower or expenses incurred by the Borrower and the items are an integral and necessary part of the Project, as determined by the Agency. A Project may consist of multiple facilities or components located at multiple locations.

(1) Purchase and installation of equipment (new, refurbished, or remanufactured), including an integrated demonstration unit if the integrated demonstration unit will be used by the Borrower in the Project after the Project is developed and in operation.

(2) New construction or Retrofitting of existing facilities including reasonable contingency reserves, land acquisition, site improvements and development, and associated costs such as surveys, title insurance, title fees, and recording or transfer fees.

(3) Permit and license fees and fees and charges for professional services. Professional services are those rendered by entities generally licensed or certified by States or accreditation associations, such as architects, engineers, accountants, attorneys, or appraisers, and those rendered by Loan Packagers (excluding finders fees). The Borrower may pay fees for professional services needed for planning and developing a Project provided that the amounts are reasonable and customary in the area. Professional fees may be included as an eligible use of loan proceeds.

(4) Working Capital.

(5) Cost of necessary insurance and bonds.

(6) Cost of financing, including capitalized Interest during construction period, legal fees, transaction costs, and customary fees charged by the lender, excluding the guaranteed loan fee and annual renewal fees.

(7) Cash reserve accounts required by the Lender or Agency, such as a debt service reserve account.

(8) Any other item identified by the Agency in a notice published in the

Federal Register

.

(9) The Agency will consider refinancing only under either of the two conditions specified in paragraphs (d)(9)(i) and (ii) of this section.

(i) Permanent financing used to refinance interim construction financing of the proposed Project only if the application for the guaranteed loan under this subpart was approved prior to closing the interim loan for the construction of the Project.

(ii) Refinancing that is no more than 20 percent of the loan for which the Agency is guaranteeing and the purpose of the refinance is to enable the Agency to establish a first lien position with respect to pre-existing Collateral subject to a pre-existing lien and the refinancing would be in the best financial interests of the Federal Government.

(e) Ineligible Project costs include:

(1) Distribution or payment to an individual owner, partner, stockholder, or beneficiary of the Borrower or a close relative of such an individual when such individual will retain any portion of the ownership of the Borrower;

(2) Any line of credit;

(3) Any equipment, processes, and related costs of such equipment used for processing corn kernel starch into biofuel, including as an incidental or secondary product; and

(4) Payment in excess of actual costs (such as profit, overhead, and indirect costs) incurred by the contractor or other service provider on a contract or agreement that has been entered into at less than an Arm's Length Transaction or with an appearance of or a potential for Conflict of Interest.

§§ 4279.211-4279.213

[Reserved]

Lender Functions and Responsibilities

§ 4279.214

General functions and responsibilities.

(a) The Lender has the primary responsibility for loan origination and servicing. Any action or inaction on the part of the Agency does not relieve the Lender of its responsibilities to originate and service the loan guaranteed under this subpart. The Lender may contract for services and may rely on certain written materials (including, but not limited to, certifications, evaluations, appraisals, financial statements and other reports) to be provided by the Borrower or other qualified third parties (including, among others, one or more independent engineers, appraisers, accountants, consultants or other experts.) The Lender is ultimately responsible for underwriting, loan origination, loan servicing, and compliance with all Agency regulations.

(b) Agents and Persons are prohibited from acting as both Loan Packager and Loan Service Provider on the same guaranteed loan.

(c) All Lenders obtaining or requesting a Program loan guarantee are responsible for:

(1) Processing applications for guaranteed loans. The Lender is responsible for submitting a complete application for each guaranteed loan requested;

(2) Developing and maintaining adequately documented loan files, which must be maintained for at least 3 years after the final loss has been paid;

(3) Recommending only loan proposals that are eligible and financially feasible;

(4) Properly closing the loan and obtaining valid evidence of debt and Collateral in accordance with sound lending practices prior to disbursing loan proceeds;

(5) Keeping an inventory accounting of all Collateral items and reconciling the inventory of all Collateral sold during loan servicing, including liquidation;

(6) Supervising construction;

(7) Distributing loan funds;

(8) Servicing guaranteed loans in a reasonable manner, including liquidation if necessary;

(9) Following Agency regulations and agreements;

(10) Obtaining Agency approvals or concurrence as required; and

(11) Reporting all Conflicts of Interest, or appearances thereof, to the Agency.

§ 4279.215

Credit evaluation.

(a) Lenders must analyze all credit factors associated with each proposed loan and apply its professional judgment to determine that the credit factors, considered in combination, to ensure loan repayment. The Lender must have an adequate underwriting process to ensure that loans are reviewed by someone other than the originating officer. The Agency will only guarantee loans that are financially sound and feasible with reasonable assurance of repayment.

(b) In its credit evaluation, the Agency will consider the following factors:

(1) The feasibility of the Project and Borrower and likelihood that the Project and Borrower will produce sufficient revenues to service the Project's debt

obligations over the life of the loan guarantee and result in sufficient returns to investors;

(2) Project and Borrower debt structure and characteristics and debt repayment ability;

(3) Revenues of the Project and Borrower, strength and duration of off-take contracts and counterparty agreements, market demand and competitive position;

(4) Technical feasibility, demonstrated performance of the technology and readiness to commercialize the technology;

(5) Ownership structure of the Project and Borrower, strength of ownership and sponsors, commitment and amount of equity investment from ownership, sponsors and other equity investors;

(6) Operational management and experience;

(7) Complexity of construction/completion, terms of construction contracts, experience and financial strength of the construction contractor or engineering, procurement, and construction (EPC) contractor;

(8) Availability and depth of resource/feedstock market, strength and duration of purchase agreements, and availability of substitutes;

(9) Contracts and intellectual property rights, and state and local regulations;

(10) Energy, infrastructure and environmental considerations;

(11) The extent to which Project Costs are funded by the guaranteed loan or other Federal and non-Federal governmental assistance such as grants, tax credits, or other loan guarantees;

(12) Economic safeguards of the Project including contingency reserve funds and protections and safeguards provided to the Agency and Lender in the event of default through loan collateral and ownership and sponsorship guarantors, and;

(13) Other criteria that the Agency deems relevant.

§ 4279.216

Environmental responsibilities.

Lenders are responsible for becoming familiar with Federal environmental requirements; considering, in consultation with the prospective Borrower, the potential environmental impacts of their proposals at the earliest planning stages; and developing proposals that minimize the potential to adversely impact the environment.

(a) Lenders must alert the Agency to any environmental issues related to a proposed Project or items that may require extensive environmental review.

(b) Lenders must ensure that the Borrower has:

(1) Provided the necessary environmental information to enable the Agency to undertake its environmental review process in accordance with 7 CFR part 1940, subpart G, or successor regulations, including the provision of all required Federal, State, and local permits, and has completed Form RD 1940-20, “Request for Environmental Information,” and Exhibit H “Environmental Assessment for Class II Actions” (when required by 7 CFR part 1940, subpart G);

(2) Complied with any mitigation measures required by the Agency; and

(3) Not taken any actions or incurred any obligations with respect to the proposed Project that will either limit the range of alternatives to be considered during the Agency's environmental review process or which will have an adverse effect on the environment.

(c) Lenders must assist in the collection of additional data when the Agency needs such data to complete its environmental review of the proposal and assist in the resolution of environmental issues.

§ 4279.217

Oversight and monitoring.

The Lender must permit representatives of the Agency (or other agencies of the United States) to inspect and make copies of any records of the Lender pertaining to Program guaranteed loans during regular office hours of the Lender or at any other time upon agreement between the Lender and the Agency. In addition, the Lender must cooperate fully with Agency oversight and monitoring of all Lenders involved in any manner with any loan guarantee under this Program to ensure compliance with this subpart. Such oversight and monitoring will include, but is not limited to, reviewing Lender records and meeting with Lenders (in accordance with § 4287.307(d) of this chapter).

§§ 4279.218-4279.219

[Reserved]

Conditions of Guarantee

§ 4279.220

General conditions of guarantee.

A loan guarantee under this part will be evidenced by a Loan Note Guarantee issued by the Agency. Each Lender will execute a Lender's Agreement. If a valid Lender's Agreement already exists, it is not necessary to execute a new Lender's Agreement with each loan guarantee. The provisions of this part and 7 CFR part 4287, subpart D will apply to all outstanding guarantees. In the event of a conflict between the guaranteed loan documents and these regulations as they exist at the time the documents are executed, the regulations will control.

(a)

Full faith and credit.

(1) A guarantee under this subpart constitutes an obligation supported by the full faith and credit of the United States and is incontestable except for fraud or misrepresentation of which a Lender or Holder has actual knowledge at the time it becomes such Lender or Holder or which a Lender or Holder participates in or condones.

(2) The guarantee will be unenforceable to the extent that any loss is occasioned by:

(i) A provision for Interest on Interest, Default or penalty Interest, or late payment fees;

(ii) The violation of usury laws;

(iii) Use of loan proceeds for unauthorized purposes or to the extent that loan funds are used for purposes other than those specifically approved by the Agency in its Conditional Commitment;

(iv) Failure to obtain or maintain the required security regardless of the time at which the Agency acquires knowledge thereof; and

(v) Negligent Loan Origination or Negligent Loan Servicing unless otherwise determined under paragraph (d) of this section.

(3) The Agency will guarantee payment as follows:

(i) To any Holder, 100 percent of any loss sustained by the Holder on the guaranteed portion of the loan it owns and Interest through the Interest Termination Date due on such portion.

(ii) To the Lender, subject to the provisions of this part and subpart D of part 4287 of this chapter, the lesser of:

(A) Any loss sustained by the Lender on the guaranteed portion, including principal and Interest, through the Interest Termination Date, evidenced by the notes or assumption agreements and secured advances for protection and preservation of Collateral made with the Agency's authorization; or

(B) The guaranteed principal advanced to or assumed by the Borrower and any Interest due thereon through the Interest Termination Date.

(b)

Credit quality of Borrower.

The Agency will provide guarantees only after consideration is given to the Borrower's overall credit quality and to the terms and conditions of any applicable subsidies, tax credits, and other such incentives.

(c)

Quality of loan.

All loans guaranteed under this subpart must be financially sound and feasible, with reasonable assurance of repayment.

(d)

Gross negligence.

Upon written request of the Lender, the Agency will consider changing the negligence standard to Grossly Negligent Loan Origination and Grossly Negligent Loan

Servicing on a case-by-case basis. The Lender must establish to the Agency's satisfaction that changing to the gross negligence standard does not materially impair the Agency's interests, solely at the Agency's discretion, subject to:

(1) The lender has demonstrated capacity and experience in making and servicing loans of similar amounts and for transactions of comparable complexity;

(2) The Agency's review of the Lender's underwriting, loan approval and loan servicing policies and procedures, and;

(3) The Agency's review of the Lender's loan servicing plan.

§ 4279.221

Rights and liabilities.

When a guaranteed portion of a loan is sold to a Holder, the Holder will succeed to all rights of the Lender under the Loan Note Guarantee to the extent of the portion purchased.

(a) The Lender will remain bound to all obligations under the Loan Note Guarantee, Lender's Agreement, and the Agency Program regulations.

(b) A guarantee and right to require purchase will be directly enforceable by a Holder notwithstanding any fraud or misrepresentation by the Lender or any unenforceability of the guarantee by the Lender, except for fraud or misrepresentation of which the Holder had actual knowledge at the time it became the Holder or in which the Holder participates or condones.

(c) The Lender must reimburse the Agency for any payments the Agency makes to a Holder of Lender's guaranteed loan that, under the Loan Note Guarantee, would not have been paid to the Lender had the Lender retained the entire interest in the guaranteed loan and not conveyed an interest to a Holder.

§ 4279.222

Payments.

A Lender will receive all payments of principal and Interest on account of the entire loan and must promptly remit to the Holder its Pro Rata share of any payment within 30 days of the Lender's receipt thereof from the Borrower, determined according to its respective interest in the loan, less only the Lender's servicing fee.

§ 4279.223

Sale or assignment of guaranteed loan.

The Lender may Participate or sell all or part of the guaranteed portion of the loan or retain the entire loan. The Lender must fully disburse and properly close a loan prior to sale of any portion of the Promissory Note(s). The Lender cannot Participate or sell any amount of the guaranteed or unguaranteed portion of the loan to the Borrower or its parent, subsidiary or Affiliate or to officers, directors, stockholders, other owners, or members of their Immediate Families. The Lender cannot share any premium received from the sale of a guaranteed loan in the secondary market with a Loan Packager or other Loan Service Provider. The participating Lenders and Holders and the Borrower can have no rights or obligations to one another. If the Lender desires to market all or part of the guaranteed portion of the loan at or subsequent to loan closing, such loan must not be in Default. Lenders may use either the single Promissory Note or multi-note system as outlined in paragraphs (a) and (b) of this section.

(a)

Single note system.

The entire loan is evidenced by one Promissory Note, and one Loan Note Guarantee is issued. When the loan is evidenced by one Promissory Note, the Lender may not at a later date cause any additional notes to be issued.

(1) The Lender may assign all or part of the guaranteed portion of the loan to one or more Holders by using the Assignment Guarantee Agreement. The Lender must retain title to the Promissory Note. The Lender must complete and execute the Assignment Guarantee Agreement and return it to the Agency for execution prior to Holder execution.

(2) A Holder, upon written notice to the Lender and the Agency, may reassign the unpaid guaranteed portion of the loan, in full, sold under the Assignment Guarantee Agreement. Holders may only reassign the guaranteed portion in the complete block they have received and cannot subdivide or further split the guaranteed portion of a loan or retain an Interest strip.

(3) Upon notification and completion of the assignment through the use of the Assignment Guarantee Agreement, the assignee shall succeed to all rights and obligations of the Holder thereunder. Subsequent assignments require notice to the Lender and Agency using any format, including that used by the Bond Market Association, together with the transfer of the original Assignment Guarantee Agreement.

(4) The Agency will neither execute a new Assignment Guarantee Agreement to effect a subsequent reassignment nor reissue a duplicate Assignment Guarantee Agreement unless:

(i) The original was lost, stolen, destroyed, mutilated, or defaced; and

(ii) The reissue is in accordance with § 4279.226.

(5) The Assignment Guarantee Agreement clearly states the percentage and corresponding amount of the guaranteed portion it represents and the Lender's servicing fee. A servicing fee may be charged by the Lender to a Holder and is calculated as a percentage per annum of the unpaid balance of the guaranteed portion of the loan assigned by the Assignment Guarantee Agreement. The Agency is not and will not be a party to any contract between the Lender and another party where the Lender sells its servicing fee in an Arm's Length Transaction. The Agency will not acknowledge, approve, or have any liability to any of the parties of such contract.

(b)

Multi-note system.

Under this option, the Lender may provide multiple Promissory Notes for the unguaranteed and the guaranteed portions of the loan. All Promissory Notes must reflect the same payment terms. When the Lender selects this option, the Holder will receive one of the Borrower's executed notes and a Loan Note Guarantee. The Agency will issue a Loan Note Guarantee for each Promissory Note, including the unguaranteed Promissory Note(s), to be attached to the Promissory Note(s). An Assignment Guarantee Agreement will not be used when the multi-note option is utilized.

§ 4279.224

Minimum retention.

The Lender is required to hold a minimum of 7.5 percent of the total loan amount. The amount required to be held must be of the unguaranteed portion of the loan and cannot be Participated to another Person. The Agency may reduce the minimum retention below 7.5 percent on a case by case basis when the Lender establishes to the Secretary's satisfaction that reduction of the minimum retention percentage is to meet compliance with the Lender's regulatory authority. The Lender must retain interest in the Collateral, and retain the servicing responsibilities for the guaranteed loan.

§ 4279.225

Repurchase from Holder.

(a)

Repurchase by Lender.

A Lender has the option to repurchase the unpaid guaranteed portion of the loan from a Holder within 30 days of written demand by the Holder when the Borrower is in Default not less than 60 days on principal or Interest due on the loan; or when the Lender has failed to remit to the Holder its Pro Rata share of any payment within 30 days of the Lender's receipt thereof from the Borrower. The repurchase by the Lender will be for an amount equal to the unpaid guaranteed portion of principal and accrued Interest less the Lender's servicing fee. The Holder must concurrently send a copy of the demand

letter to the Agency. The Lender must accept an assignment without recourse from the Holder upon repurchase. The Lender is encouraged to repurchase the loan, upon written demand from the Holder, to facilitate the accounting of funds, resolve any loan problem, and resolve the Default, where and when reasonable. The benefit to the Lender is that it may re-sell the guaranteed portion of the loan in order to continue collection of its servicing fee if the Default is cured. The Lender must notify, in writing, the Holder and the Agency of its decision.

(b)

Agency repurchase.

(1) The Lender's servicing fee will stop on the date that Interest was last paid by the Borrower when the Agency purchases the guaranteed portion of the loan from a Holder. The Lender cannot charge such servicing fee to the Agency and must apply all loan payments and Collateral proceeds received to the guaranteed and unguaranteed portions of the loan on a Pro Rata basis.

(2) If the Agency repurchases 100 percent of the guaranteed portion of the loan, the Agency will not continue collection of the Annual Renewal Fee from the Lender.

(3) If the Lender does not repurchase the unpaid guaranteed portion of the loan as provided in paragraph (a) of this section, the Agency will purchase from the Holder the unpaid principal balance of the guaranteed portion together with accrued Interest to date of repurchase or the Interest Termination Date, whichever is sooner, less the Lender's servicing fee, within 30 days after written demand to the Agency from the Holder.

(4) When Lender has accelerated the account, and subject to the expiration of any forbearance or workout agreement, the Lender, or the Agency at its sole discretion, must issue a letter to the Holder(s) establishing the Interest Termination Date. Accrued Interest to be paid to the Holder(s) will be calculated from the date Interest was last paid on the loan with a termination date not to exceed the Interest Termination Date.

(5) When the Lender has accelerated the account and the Lender holds all or a portion of the guaranteed loan, an estimated loss claim (loan in the liquidation process) must be filed by the Lender with the Agency within 60 days. Accrued Interest paid to the Lender will be calculated from the date Interest was last paid on the loan to the Interest Termination Date.

(6) The Holder's demand to the Agency must include a copy of the written demand made upon the Lender. The Holder must also include evidence of its right to require payment from the Agency. Such evidence must consist of either the original of the Loan Note Guarantee properly endorsed to the Agency or the original of the Assignment Guarantee Agreement properly assigned to the Agency without recourse including all rights, title, and interest in the loan. When the single-note system is utilized and the initial Holder has sold its interest, the current Holder must present the original Assignment Guarantee Agreement and an original of each Agency approved reassignment document in the chain of ownership, with the latest reassignment being assigned to the Agency without recourse, including all rights, title, and interest in the guarantee. The Holder must include in its demand the amount due including unpaid principal, unpaid Interest to date of demand, and Interest subsequently accruing from date of demand to proposed payment date. The Agency will be subrogated to all rights of the Holder.

(7) Upon request by the Agency, the Lender must furnish within 30 days of such request a current statement certified by an appropriate authorized officer of the Lender of the unpaid principal and Interest then owed by the Borrower on the loan and the amount then owed to any Holder, along with the information necessary for the Agency to determine the appropriate amount due the Holder. Any discrepancy between the amount claimed by the Holder and the information submitted by the Lender must be resolved between the Lender and the Holder before payment will be approved. Such conflict will suspend the running of the 30 day payment requirement.

(8) Purchase by the Agency neither changes, alters, nor modifies any of the Lender's obligations to the Agency arising from the loan or guarantee nor does it waive any of Agency's rights against the Lender. The Agency will have the right to set-off against the Lender all rights inuring to the Agency as the Holder of the instrument against the Agency's obligation to the Lender under the guarantee.

(c)

Repurchase for servicing.

If the Lender, Borrower, and Holder are unable to agree to restructuring of loan repayment, Interest rate, or loan terms to resolve any loan problem or resolve the Default and repurchase of the guaranteed portion of the loan is necessary to adequately service the loan, the Holder must sell the guaranteed portion of the loan to the Lender for an amount equal to the unpaid principal and Interest on such portion less the Lender's servicing fee. The Lender must not repurchase from the Holder for arbitrage or other purposes to further its own financial gain. Any repurchase must only be made after the Lender obtains the Agency's written approval. If the Lender

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