Rural Telephone Bank and Telecommunications Program Loan Policies, Types of Loans, Loan Requirements

DEPARTMENT OF AGRICULTURE

Rural Telephone Bank

7 CFR Part 1610

Rural Utilities Service

7 CFR Parts 1735, 1737, 1739, and 1746

RIN 0572-AB32

Rural Telephone Bank and Telecommunications Program Loan

Policies, Types of Loans, Loan Requirements

AGENCY: Rural Utilities Service and Rural Telephone Bank, USDA.

ACTION: Final rule.

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SUMMARY: The Rural Utilities Service (RUS) is amending its regulations

to incorporate changes to the telecommunications loan program required

by the 1996 Farm Bill and the regulatory reinvention initiative of the

Vice President's National Performance Review. RUS has reviewed the

regulations concerning the telecommunications program and the Rural

Telephone Bank loan policies and requirements to determine whether they

are necessary, impose the least possible burden consistent with safety

and soundness, and are written in a clear, straightforward manner. As a

result of this review, the RUS telecommunications program is updating

and streamlining its regulations and policy statements. In addition,

this regulation will eliminate some policies and procedures that have

become obsolete.

EFFECTIVE DATE: This regulation is effective on October 6, 1997.

FOR FURTHER INFORMATION CONTACT: Jonathan Claffey, Acting Deputy

Director, Advanced Telecommunications Services Staff, Rural Utilities

Service, 1400 Independence Ave., SW., STOP 1701, Room 2919, South

Building, Washington, DC 20250-1701. Telephone: (202) 720-0530.

Facsimile: (202) 720-2734.

SUPPLEMENTARY INFORMATION:

Classification

This final rule has been determined to be not significant, and,

therefore has not been reviewed by the Office of Management and Budget

under Executive Order 12866.

Civil Justice Reform

This final rule has been reviewed under Executive Order 12988,

Civil Justice Reform. RUS has determined that this final rule meets the

applicable standards provided in Sec. 3. of the Executive Order.

Regulatory Flexibility Act Certification

Pursuant to Sec. 605(b) of the Regulatory Flexibility Act, 5 U.S.C.

605(b), RUS certifies that this final rule will not have a significant

economic impact on a substantial number of small entities. If a rule

has a significant economic impact on a substantial number of small

entities, the Regulatory Flexibility Act requires agencies to analyze

regulatory options that would minimize any significant impact of a rule

on small entities. The application for loans under the RUS

telecommunications program are discretionary, regulatory requirements

will, therefore, apply only to those entities which choose to apply for

funding.

This action is being taken as part of the National Performance

Review program to eliminate excess regulations and to improve the

quality of those that remain in effect. This final rule reduces the

Times Interest Earned Ratio requirement for all borrowers, simplifies

current cash distribution and investment requirements for all

borrowers, and standardizes determination of loan maturity. This final

rule is consistent with RUS's continuing effort to devolve, in

particular, cash management authority to the borrowers. It is also

consistent with the goals of the regulatory reinvention initiative of

the National Performance Review.

Information Collection and Recordkeeping Requirements

The recordkeeping and reporting burden contained in this rule under

OMB control number 0572-0079 is not fully effective until approved by

the Office of Management and Budget (OMB).

Send questions or comments regarding this burden or any other

aspect of these collections of information, including suggestions for

reducing the burden, to F. Lamont Heppe, Jr., Director, Program Support

and Regulatory Analysis, Rural Utilities Service, STOP 1522,

Washington, DC 20250-1522.

National Environmental Policy Act Certification

RUS has determined that this final rule will not significantly

affect the quality of the human environment as defined by the National

Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.). Therefore,

this action does not require an environmental impact statement or

assessment.

Program Affected

The program described by this final rule is listed in the Catalog

of Federal Domestic Assistance Programs under 10.851, Rural

Telecommunications Loans and Loan Guarantees, and 10.582, Rural

Telephone Bank Loans. This catalog is available on a subscription basis

from the Superintendent of Documents, the United States Government

Printing Office, Washington, DC 20402.

Intergovernmental Review

This program is excluded from the scope of Executive Order 12372,

Intergovernmental Consultation. A Notice of Final Rule entitled

Department Programs and Activities Excluded from Executive Order 12372

(50 FR 47034) exempts RUS and Rural Telephone Bank loans and loan

guarantees to governmental and non-governmental entities from coverage

under this Order.

Unfunded Mandate

This rule contains no Federal mandates (under the regulatory

provisions of Title II of the Unfunded Mandate Reform Act) for State,

local, and tribal governments or the private sector. Thus today's rule

is not subject to the requirements of sections 202 and 205 of the

Unfunded Mandate Reform Act.

[[Page 46868]]

Background

On March 7, 1997, at 62 FR 10483, RUS published a proposed rule to

incorporate changes to the telecommunications loan program required by

the Federal Agriculture Improvement and Reform Act of 1996 (Pub. L.

104-127) (1996 Farm Bill) and the regulatory reinvention initiative of

the Vice President's National Performance Review. The amendments as

proposed would reduce regulatory burdens on RUS telecommunications

program borrowers and simplify existing procedures and policies.

RUS received 7 comments regarding the proposed rule, which were

taken into consideration in preparing the final rule. Overall,

respondents generally expressed support for the proposed rule, but made

specific comments. A list of the commenters and comment summaries and

responses follows:

1. Joint comments submitted by: Eastern Rural Telecom Association;

United States Telephone Association; Western Rural Telephone

Association; and National Rural Telecom Association, Washington, DC.

2. Organization for the Promotion and Advancement of Small

Telecommunications Companies, Washington, DC.

3. National Telephone Cooperative Association, Washington, DC.

4. Associated Communications & Research Services, Oklahoma City,

OK.

5. Lackawaxen Telephone Company, Rowland, PA.

6. TDS Telecom, Madison, WI.

7. Kiesling Associates, LLP, West Des Moines, IA.

Sections 1610.6 and 1735.31 Concurrent Bank and RUS Cost-of-Money Loans

Comment Summary: One commenter objected to the proposal to limit

the size of cost-of-money and Rural Telephone Bank (Bank) loans to no

more than 10 percent of lending authority from appropriations in any

fiscal year. The commenter believes no authority exists in the Rural

Electrification Act of 1936, as amended (RE Act), for RUS to make loans

for less than 100 percent of the borrowers needs. If there is a

shortage of cost-of-money and Bank loan funds the solution is to

increase loan levels, not ration available credit among borrowers.

Response: The proposed revision to the regulations reflects the

government's current fiscal and budgetary constraints. To continue

fulfilling RUS's mission of ensuring that rural telecommunications

providers have the means to modernize their networks, to fully effect

the mandated area coverage provision of the RE Act, and to achieve

maximum use of funds available, RUS will limit the loan amount to any

single borrower in a fiscal year to, generally, no more than 10 percent

of the lending authority from appropriations in any fiscal year.

Section 1610.11 Prepayments

Comment Summary: RUS was asked to clarify how new terms of the loan

and remaining economic life will be determined for borrowers requesting

refunding notes. One commenter asked if a borrower prepays 100 percent

of the amount outstanding whether or not the equipment originally

financed is no longer in service, would this be possible under the new

provisions without penalty?

Response: The principal balance of the refunding notes would be the

unpaid principal balance of the original notes associated with the

loan. The term of the refunding notes would match the remaining

composite economic life of the facilities financed, as determined by

the original feasibility study prepared in connection with that

particular loan. All other payment terms, including the rate of

interest on the refunding notes, would remain unchanged. Only those

Bank borrowers subject to the funded reserve or net plant to secured

debt ratio requirements electing to issue refunding notes will not be

required to pay a prepayment premium, if such requirement is contained

in the original note. Barring this, Bank borrowers with notes

containing prepayment premium provisions will still be bound by those

provisions if prepaying a loan.

Section 1735.2 Definitions

Comment Summary: One commenter inquired about the definitions of

total assets and net worth and how existing borrowers (e.g., those

under an older form of mortgage with RUS) that elect to follow the new

allowable distribution calculation under Sec. 1735.46 determine total

assets and net worth.

Response: The definitions for total assets and net worth have been

added to Sec. 1735.2. The new allowable distribution calculation under

Sec. 1735.46 will be based on the total assets and net worth of the

borrower, and not on a consolidated basis.

Section 1735.17 Facilities Financed

Comment Summary: Many commenters objected to RUS adopting the

policy that it will finance only buried plant for all loans unless RUS

determines that buried plant is not economically feasible. Commenters

believe that it is preferable to remain flexible in this uncertain

telecommunications environment. Commenters suggested that, if RUS

determines that it is necessary to implement this proposal, that RUS

define the term economically feasible, and, to conform to its intended

purpose, refer solely to outside plant and not cover all facilities.

Response: The proposed rule reflects the extensive experience of

RUS and consequently does not impose any new requirement on borrowers.

To impose this requirement when the costs would be exorbitant would be

burdensome to borrowers and counterproductive to achieving the

objectives of the RE Act. RUS will only finance those system designs or

facilities that can withstand or are designed to minimize damage caused

by storms and other natural catastrophes, unless an alternate design or

facility is more economically or technically feasible. Economic and

technical feasibility will be determined using total long range

economic costs and risk analysis.

Section 1735.43 Payments on Loans

Comment Summary: Several commenters expressed concern that the

proposal to tie the amortization period for loans to the depreciated

life of facilities financed may not be in the best interest of RUS

borrowers. Commenters believe that there will be many circumstances in

which borrowers will require loan terms that extend 3 years beyond the

expected composite economic life of the facilities financed. In those

circumstances, current RUS regulations are substantially adequate to

protect the interest of the government, and that the proposal to

require the borrower provide additional security (i.e., funded reserve)

for a loan that exceeds the expected composite economic life of the

facilities by more than 3 years is unwarranted and unnecessary. One

commenter felt that the additional security in the form of a funded

reserve should be replaced by a requirement to maintain a net plant to

secured debt ratio of 1.2. Borrowers could certify they have maintained

a 1.2 net plant ratio if they opted for loan amortization periods

different than the standard; thus, simplifying the process and reducing

paperwork and costs to the borrower and RUS.

Response: The final rule establishes that the repayment period will

be based on the expected composite economic life of the facilities

financed. Collateral for RUS loans rests on the value of the facilities

financed. RUS relies on the revenues produced by the facilities

financed for repayment of the loans. Therefore, RUS will continue to

require borrowers electing maturities of more than the depreciated life

plus 3 years maintain a funded reserve to ensure

[[Page 46869]]

adequate security over the life of the loan.

The RE Act sets no minimum length for amortization of loans,

presumably to allow RUS to determine a prudent amortization period.

There are several benefits to tying the amortization period to expected

composite economic life of facilities financed. First, earnings of the

company are based on, among other things, the economic life of the

facilities (depreciation). Second, total interest expense is reduced.

Finally, the government's loan security is enhanced by the loan life

approximating plant life; the economic life of the mortgaged assets

declines at approximately the same pace as the principal balance of the

loan.

It is general practice for lenders making loans for capital assets

to set the amortization period of the loan equal to or less than the

expected economic life of the items financed. Consequently, RUS is not

seeking to establish a unique requirement in this area. This option is

intended to allow the borrower flexibility of extending loan maturity

while allowing the government to maintain adequate security for its

loan. This requirement is also consistent with OMB Circular A-129,

Managing Federal Credit Programs, which in part states that the

maturity offered should be shorter than the estimated economic life of

the asset financed. With telecommunications borrowers facing increasing

competition and the potential for regulatory changes, adequate security

is of critical concern to RUS.

Section 1735.46 Loan Security Documents

Comment Summary: All commenters overwhelmingly supported the

proposed simplification of RUS's policy for determining a borrower's

allowable level of distributions and investments. Several commenters

requested RUS clarify some minor technical aspects of the proposed

formula. One commenter, however, in principle, believes that RUS

borrowers should be able to dividend 100 percent of net earnings

subsequent to loan approval. This would be more in line with private

lenders without adversely affecting loan security.

Response: RUS's new policy regarding investments and distributions

of assets by borrowers will be in all mortgages for loans approved

after the effective date of this final rule. Borrowers that have not

received a loan after the effective date of the final rule may request

the Administrator to apply the new requirements to them; however, once

the decision is made to switch to the new requirements, borrowers may

not revert back to the old method. This new policy is not an

alternative method for borrowers to choose between from year to year.

Further, unlike the former method for determining allowable

distributions whereby adjustments were made to net worth and total

assets based upon, among other things, a borrower's investments in

affiliates, no such adjustments will be factored into the new method

for determining allowable distributions. RUS also modified the

definition of cash distributions to include dividend and capital credit

distributions.

A technical correction not published in the proposed rule will be

made in the final rule to Sec. 1735.32, Guaranteed loans. Presently, to

qualify for a guaranteed loan, among other things, a borrower must have

a projected TIER (including the proposed loan or loans) of at least 1.5

as determined by the feasibility study prepared in connection with the

loan. To be consistent with RUS's previously proposed policy to reduce

the maximum TIER maintenance requirement to no more than 1.5 for all

borrowers receiving any type of loan after the effective date of the

final rule, the TIER eligibility requirement for guaranteed loans will

be reduced to a minimum of 1.2.

List of Subjects

7 CFR Part 1610

Accounting, Loan programs--communications, Reporting and

recordkeeping requirements, Rural areas, Telecommunications.

7 CFR Part 1735

Accounting, Loan programs--communications, Reporting and

recordkeeping requirements, Rural areas, Telecommunications.

7 CFR Part 1737

Accounting, Loan programs--communications, Reporting and

recordkeeping requirements, Rural areas, Telecommunications.

7 CFR Part 1739

Accounting, Guaranteed program, Loan programs--communications,

Reporting and recordkeeping requirements, Rural areas,

Telecommunications.

7 CFR Part 1746

Accounting, Guaranteed program, Loan programs--communications,

Reporting and Recordkeeping requirements, Rural areas,

Telecommunications.

For the reasons set forth in the preamble, and under the authority

of 7 U.S.C. 901 et seq., chapters XVI and XVII of Title 7 of the Code

of Federal Regulations are amended as follows:

CHAPTER XVI

PART 1610--LOAN POLICIES

1. The authority citation for part 1610 continues to read as

follows:

Authority: 7 U.S.C. 941 et seq.; Pub. L. 103-354, 108 Stat. 3178

(7 U.S.C. 6941, et seq.).

2. In Sec. 1610.6, new paragraph (d) is added to read as follows:

Sec. 1610.6 Concurrent Bank and RUS cost-of-money loans.

* * * * *

(d) Generally, no more than 10 percent of lending authority from

appropriations in any fiscal year for Bank and RUS cost-of-money loans

may be loaned to a single borrower. The Bank will publish by notice in

the Federal Register the dollar limit that may be loaned to a single

borrower in that particular fiscal year based on approved Bank and RUS

lending authority.

3. In Sec. 1610.11, a new paragraph (c) is added to read as

follows:

Sec. 1610.11 Prepayments.

* * * * *

(c) Borrowers that qualify to issue a refunding note or notes in

accordance with 7 CFR 1735.43, Payments on loans, shall not be required

to pay a prepayment premium on all payments made in accordance with the

new payment schedule.

CHAPTER XVII

PART 1735--GENERAL POLICIES, TYPES OF LOANS, LOAN REQUIREMENTS--

TELECOMMUNICATIONS PROGRAM

1. The part heading for part 1735 is revised as set forth above.

1a. The authority citation for part 1735 is revised to read as

follows:

Authority: 7 U.S.C. 901 et seq., 1921 et seq.; Pub. L. 103-354,

108 Stat. 3178 (7 U.S.C. 6941 et seq.).

2. In Sec. 1735.2, the definition of Construction fund is amended

by removing the reference ``See 7 CFR part 1758.'', the definitions for

Adjusted assets and Adjusted net worth are removed, and new definitions

Cash distribution, Net worth, and Total assets are added in

alphabetical order to read as follows:

Sec. 1735.2 Definitions.

* * * * *

Cash distribution means investments, guarantees, extensions of

credit,

[[Page 46870]]

advances, loans, non-affiliated company joint ventures, affiliated

company investments, and dividend and capital credit distributions. Not

included in this definition are qualified investments (see 7 CFR part

1744, subpart D).

* * * * *

Net worth means the sum of the balances of the following accounts

of the borrower:

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Account names Number

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(1) Capital stock............................................ 4510

(2) Additional paid-in capital............................... 4520

(3) Treasury stock........................................... 4530

(4) Other capital............................................ 4540

(5) Retained earnings........................................ 4550

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Note: For nonprofit organizations, owners' equity is shown in

subaccounts of 4540 and 4550. All references regarding account numbers

are to the Uniform System of Accounts (47 CFR part 32).

* * * * *

Total assets means the sum of the balances of the following

accounts of the borrower:

------------------------------------------------------------------------

Account names Number

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(1) Current assets........................ 1100s through 1300s.

(2) Noncurrent Assets..................... 1400s through 1500s.

(3) Total telecommunications plant........ 2001 through 2007.

(4) Less: Accumulated depreciation........ 3100 through 3300s.

(5) Less: Accumulated amortization........ 3400 through 3600s.

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Note: All references regarding account numbers are to the Uniform System

of Accounts (47 CFR part 32).

3. In Sec. 1735.3, the first sentence is revised to read as

follows:

Sec. 1735.3 Availability of forms.

Single copies of RUS forms and publications cited in this part are

available from Program Support Regulatory Analysis, Rural Utilities

Service, STOP 1522, 1400 Independence Ave., SW., Washington, DC 20250-

1522. * * *

4. In Sec. 1735.17, paragraph (c) is revised to read as follows:

Sec. 1735.17 Facilities financed.

* * * * *

(c) RUS will not make any type of loan to finance the following

items:

(1) Station apparatus (including PBX and key systems) not owned by

the borrower and any associated inside wiring;

(2) Certain duplicative facilities, see Sec. 1735.12;

(3) Facilities to serve subscribers outside the local exchange

service area of the borrower unless those facilities are necessary to

furnishing or improving telecommunications service within the

borrower's service areas;

(4) Facilities to provide service other than 1-party; and

(5) System designs or facilities to provide service that cannot

withstand or are not designed to minimize damage caused by storms and

other natural catastrophes, including, but not limited to hurricanes,

floods, tornadoes, mudslides, lightning, windstorms, hail, fire, and

smoke, unless an alternate design or facility for modern

telecommunications is more economically or technically feasible.

Economic and technical feasibility will be determined using total long

range economic costs and risk analysis.

* * * * *

5. In Sec. 1735.22, paragraph (g) is redesignated as new paragraph

(i), paragraph (f) is revised, and new paragraphs (g) and (h) are added

to read as follows:

Sec. 1735.22 Loan security.

* * * * *

(f) For purposes of determining compliance with TIER requirements,

unless a borrower whose existing mortgage contains TIER maintenance

requirements notifies RUS in writing differently, RUS will apply the

requirements described in paragraph (g) of this section to the borrower

regardless of the provisions of the borrower's existing mortgage.

(g) For loans approved after October 6, 1997 loan contracts and

mortgages covering hardship loans, RUS cost-of-money loans, RTB loans,

and guaranteed loans will contain a provision requiring the borrower to

maintain a TIER of at least 1.0 during the Forecast Period. At the end

of the Forecast Period, the borrower shall be required to maintain, at

a minimum, a TIER at least equal to the projected TIER determined by

the feasibility study prepared in connection with the loan, but at

least 1.0 and not greater than 1.5.

(h) Nothing in this section shall affect any rights of supplemental

lenders under the RUS mortgage, or other creditors of the borrower, to

limit a borrower's TIER requirement to a level above that established

in paragraph (g) of this section.

* * * * *

6. In Sec. 1735.31, paragraphs (d) and (e) are redesignated as new

paragraphs (e) and (f), and new paragraph (d) is added to read as

follows:

Sec. 1735.31 RUS cost-of-money and RTB loans.

* * * * *

(d) Generally, no more than 10 percent of lending authority from

appropriations in any fiscal year for RUS cost-of-money and RTB loans

may be loaned to a single borrower. RUS will publish by notice in the

Federal Register the dollar limit that may be loaned to a single

borrower in that particular fiscal year based on approved RUS and RTB

lending authority.

* * * * *

7. In Sec. 1735.32, the first sentence of paragraph (b), and

paragraph (c) are revised to read as follows:

Sec. 1735.32 Guaranteed loans.

* * * * *

(b) Requirements. To qualify for a guaranteed loan, a borrower must

have a projected TIER (including the proposed loan or loans) of at

least 1.2 as determined by the feasibility study prepared in connection

with the loan. * * *

(c) Net worth requirements. RUS generally requires that borrowers

seeking guaranteed loans have a net worth in excess of 20 percent of

assets. RUS will, however, consider loan guarantees for borrowers with

a net worth less than 20 percent.

* * * * *

8. Section 1735.33 is added to read as follows:

Sec. 1735.33 Variable interest rate loans.

After June 10, 1991, and prior to November 1, 1993, RUS made

certain variable rate loans at interest rates less than 5 percent but

not less than 2 percent. For those borrowers that received variable

rate loans, this section describes the method by which interest rates

are adjusted. The interest rate used in determining feasibility is the

rate charged to the borrower until the end of the Forecast Period for

that loan. At the end of the Forecast Period, the interest rate for the

loan may be annually adjusted by the Administrator upward to a rate not

greater than 5 percent, or downward to a rate not less than the rate

determined in the feasibility study on which the loan was based, based

on the borrower's ability to pay debt service and maintain a minimum

TIER of 1.0. Downward and upward adjustments will be rounded down to

the nearest one-half or whole percent. To make this adjustment,

projections set forth in the loan feasibility study will be revised

annually by RUS (beginning within four months after the end of the

Forecast Period) to reflect updated revenue and expense factors based

on the borrower's current operating condition. Any such adjustment will

be effective on July 1 of the year in which the adjustment was

determined. If the Administrator determines that the borrower is

capable of meeting the

[[Page 46871]]

minimum TIER requirements of Sec. 1735.22(f) at a loan interest rate of

5 percent on a loan made as described in this section, then the loan

interest rate shall be fixed, for the remainder of the loan repayment

period, at the standard interest rate of 5 percent.

9. In Sec. 1735.43, the section heading is revised, paragraph (a)

is revised, paragraph (b) is redesignated as new paragraph (f), and new

paragraphs (b) through (e) are added to read as follows:

Sec. 1735.43 Payments on loans.

(a) Except as described in this paragraph (a), RUS loans approved

after October 6, 1997 must be repaid with interest within a period

that, rounded to the nearest whole year, equals the expected composite

economic life of the facilities to be financed, as calculated by RUS;

expected composite economic life means the depreciated life plus three

years. The expected composite economic life shall be based on the

depreciation rates for the facilities financed by the loan. In states

where the borrower must obtain state regulatory commission approval of

depreciation rates, the depreciation rates used shall be the rates

currently approved by the state commission or rates for which the

borrower has received state commission approval. In cases where a state

regulatory commission does not approve depreciation rates, the expected

composite economic life shall be based on the most recent median

depreciation rates published by RUS for all borrowers (see 7 CFR

1737.70). Borrowers may request a repayment period that is longer or

shorter than the expected composite economic life of the facilities

financed. If the Administrator determines that a repayment period based

on the expected composite economic life of the facilities financed is

likely to cause the borrower to experience hardship, the Administrator

may agree to approve a period longer than requested. A shorter period

may be approved as long as the Administrator determines that the loan

remains feasible.

(b) Borrowers with RTB loans approved after October 6, 1997 with a

maturity that exceeds the expected composite economic life of the

facilities to be financed by the loan by a period of more than three

years, release of funds included in the loan shall be conditioned upon

the borrower establishing and maintaining, pursuant to a plan approved

by RUS, a funded reserve in such an amount that the balance of the

reserve plus the value of the facilities less depreciation shall at all

times be at least equal to the remaining principal payments on the

loan. Funding of the reserve must begin within one year of approval of

release of funds and must continue regularly over the expected

composite economic life of the facilities financed.

(c) Borrowers that have demonstrated to the satisfaction of the

Administrator an inability to maintain the funded reserve or net plant

to secured debt ratio requirements, if any, contained in their

mortgage, may elect to replace notes with an original maturity that

exceeded the composite economic life of the facilities financed with

notes bearing a shorter maturity approximating the expected composite

economic life of the facilities financed, if this will result in a

shorter maturity for the loan. The principal balance of the notes

(hereinafter in this section called the ``refunding notes'') issued to

refund and substitute for the original notes would be the unpaid

principal balance of the original notes. The refunding notes would

mature at a date no later than the remaining economic life of the

facilities financed by the loan, plus three years, as determined by the

original feasibility study prepared in connection with the loan.

Interest on the original note must continue to be paid through the

closing date. All other payment terms, including the rate of interest

on the refunding notes, would remain unchanged. Disposition of funds in

the funded reserve will be determined by RUS at the closing date. RUS

will notify the borrower in writing of the amendment of loan payment

requirements and the terms and conditions thereof.

(d) A borrower qualifying under paragraph (c) of this section shall

not be required to pay a prepayment premium on such portion of the

payments under its new notes as exceeds the payments required under the

notes being replaced.

(e) To apply for refunding notes, borrowers must send to the Area

Office the following:

(1) A certified copy of a board resolution requesting an amendment

of loan payment requirements and that certain notes be replaced;

(2) If applicable, evidence of approval by the regulatory body with

jurisdiction over the telecommunications service provided by the

borrower to issue refunding notes; and

(3) Such other documents as may be required by the RUS.

* * * * *

10. In Sec. 1735.46, paragraphs (b), (c) and (d) are revised,

paragraphs (e) and (f) are removed, and paragraphs (g) and (h) are

redesignated as paragraphs (e) and (f) to read as follows:

Sec. 1735.46 Loan security documents.

* * * * *

(b) Loan security documents of borrowers with loans approved after

October 6, 1997 will provide limits on allowable cash distributions in

any calendar year as follows:

(1) No more than 25 percent of the prior calendar year's net

earnings or margins if the borrower's net worth is at least 1 percent

of its total assets after the distribution is made;

(2) No more than 50 percent of the prior calendar year's net

earnings or margins if the borrower's net worth is at least 20 percent

of its total assets after the distribution is made;

(3) No more than 75 percent of the prior calendar year's net

earnings or margins if the borrower's net worth is at least 30 percent

of its total assets after the distribution is made; or

(4) No limit on distributions if the borrower's net worth is at

least 40 percent of its total assets after the distribution is made.

(c) Borrowers that have not received a loan after October 6, 1997

may request the Administrator to apply these requirements to them.

Borrowers may request in writing that RUS substitute the new

requirements described in paragraphs (b)(1) through (b)(4) of this

section. Upon request by the borrower, the provisions of the borrower's

loan documents restricting cash distributions or investments shall not

be enforced to the extent that such provisions are inconsistent with

this section.

(d) Rural development investments meeting the criteria set forth in

7 CFR part 1744, subpart D, will not be counted against a borrower's

allowable cash distributions in any calendar year (7 U.S.C. 926).

* * * * *

Sec. 1735.60 [Amended]

11. Sec. 1735.60, paragraph (a) introductory text is amended by

removing the reference ``(see 7 CFR part 1758)'' and paragraph (a)(3)

is removed.

Sec. 1735.76 [Amended]

12. Sec. 1735.76, the second ``or'' is removed and the word ``of''

is added in its place.

PART 1737--PRE-LOAN POLICIES AND PROCEDURES COMMON TO GUARANTEED

TELECOMMUNICATIONS LOANS

13. The part heading for part 1737 is revised as set forth above.

14. The authority citation for part 1737 is revised to read as

follows:

Authority: 7 U.S.C. 901 et seq., 1921 et seq.; Pub. L. 103-354,

108 Stat. 3178 (7 U.S.C. 6941 et. seq.).

[[Page 46872]]

Sec. 1737.70 [Amended]

15. In Sec. 1737.70, paragraph (d) is removed and reserved.

PART 1739--[REMOVED]

16. Part 1739 is removed.

PART 1746--[REMOVED]

17. Part 1746 is removed.

Dated: August 28, 1997.

Inga Smulkstys,

Acting Under Secretary, Rural Development.

[FR Doc. 97-23580 Filed 9-4-97; 8:45 am]

BILLING CODE 3410-15-P