Settlement of Debt Owed by Electric Borrowers

DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1717

RIN 0572-AB26

Settlement of Debt Owed by Electric Borrowers

AGENCY: Rural Utilities Service.

ACTION: Proposed rule.

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SUMMARY: The Administrator of the Rural Utilities Service (RUS) hereby

proposes to establish policies and standards for the settlement of

debts and claims owed by rural electric borrowers. In addition to

proposing policies and standards for debt settlement, the rule proposes

RUS policy on subsequent loans to borrowers whose debt has been

restructured.

DATES: Written comments must be received by RUS or carry a postmark or

equivalent by May 2, 1997.

ADDRESSES: Written comments should be addressed to Monte Heppe, Jr.,

Director, Program Support and Regulatory Analysis, U.S. Department of

Agriculture, Rural Utilities Service, Stop 1522, 1400 Independence Ave.

SW., Washington, DC 20250-1522. RUS requires, in hard copy, a signed

original and 3 copies of all comments (7 CFR 1700.30(e)). Comments will

be available for public inspection during regular business hours (7 CFR

1.27(b)).

FOR FURTHER INFORMATION CONTACT: Mr. Blaine D. Stockton, Jr., Assistant

Administrator--Electric, U.S. Department of Agriculture, Rural

Utilities Service, Stop 1560, 1400 Independence Avenue, SW.,

Washington, DC 20250-1560. Telephone: 202-720-9545.

SUPPLEMENTARY INFORMATION: This regulatory action has been determined

to be significant for the purposes of Executive Order 12866, Regulatory

Planning and Review, and therefore has been reviewed by the Office of

Management and Budget (OMB). The Administrator of the Rural Utilities

Service (RUS) has determined that a rule relating to the RUS electric

loan program is not a rule as defined in the Regulatory Flexibility Act

(5 U.S.C. 601 et seq.), and, therefore, the Regulatory Flexibility Act

does not apply to this proposed rule. The Administrator of RUS has

determined that this 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. This proposed

rule is excluded from the scope of Executive Order 12372,

Intergovernmental Consultation, which may require consultation with

State and local officials. A Notice of Final Rule titled Department

Programs and Activities Excluded from Executive Order 12372 (50 FR

47034) exempts RUS electric loans and loan guarantees from coverage

under this Order. This proposed rule has been reviewed under Executive

Order 12988, Civil Justice Reform. RUS has determined that this

proposed rule meets the applicable standards provided in Sec. 3 of the

Executive Order.

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

Federal Domestic Assistance Programs under number 10.850 Rural

Electrification Loans and Loan Guarantees. This catalog is available on

a subscription basis from the Superintendent of Documents, the United

States Government Printing Office, Washington, DC 20402-9325.

Background

On April 4, 1996, P.L. 104-127 amended section 331(b) of the

Consolidated Farm and Rural Development Act (Con Act) to extend to RUS

loans and loan guarantees the Secretary of Agriculture's authority to

compromise, adjust, reduce, or charge-off debts or claims owed to the

government (collectively, debt settlement). The amendment also extended

to the security instruments, leases, contracts, and agreements

administered by RUS, the Secretary's authority to adjust, modify,

subordinate, or release the terms of those documents. The Secretary of

Agriculture, in 7 CFR 2.47, has delegated authority under section

331(b) to the Administrator of RUS, with respect to loans made or

guaranteed by RUS.

This proposed regulation proposes the policies, standards, and

procedures the Administrator would use in settling (restructuring)

debts and claims owed by rural electric borrowers.

Section 1717.1202 General Policy

This section proposes general policies for settling debts and

claims. Four general policies are proposed:

1. Wherever possible, all debt and claims will be collected in full

in accordance with its terms.

2. The rule by itself contains nothing that modifies or forgives

debt or claims owed by a borrower. Any debt

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settlement will require the explicit written approval of the

Administrator.

3. The Administrator's authority to settle debts and claims will

apply to cases where a borrower is unable to pay its debts and claims

in accordance with their terms, and where settlement will maximize the

recovery of debts and claims owed to the government.

4. The Administrator will consider several factors in structuring

debt settlements and determining the amount of debt recovery that is

possible. Among those factors are the Rural Electrification Act of

1936, the National Energy Policy Act of 1992, the policies and

regulations of the Federal Energy Regulatory Commission (FERC), and

other market and nonmarket forces that affect competition in the

electric utility industry and, in particular, the rural electric

segment of the industry.

Section 1717.1203 Relationship Between RUS and Department of Justice

The Administrator is required to notify the Attorney General

whenever the Administrator intends to use his or her settlement

authority. The Attorney General retains the authority under existing

law to settle debts and claims against a borrower that is in bankruptcy

or is otherwise involved in litigation with the government. In

addition, any debt or claim that has been referred in writing to the

Attorney General would not be settled under the Administrator's own

authority.

Section 1717.1204 Policies and Conditions Applicable to Settlements

This section proposes specific policies, standards, and conditions

applicable to debt settlements. These are in addition to the general

principles proposed in Sec. 1717.1202. The specific policies,

standards, and conditions include the following:

Documentation, analyses, and other actions would be

required of the borrower to demonstrate that it is unable to pay its

debts or claims in accordance with their terms, or that it will be

unable to meet such obligations sometime within the 24 months following

the borrower's application for relief, and that such default is likely

to continue beyond the 24-month period.

RUS could contract with an independent consultant of its

choice to provide an analysis of the efficiency and effectiveness of

the borrower's organization and operations, and those of its member

systems in the case of a power supply borrower. The borrower (and its

member systems in the case of a power supply borrower) could be

required to share in the costs of the consultant. The scope of work of

the independent consultant, reporting relationships, and the

consultant's access to the borrower's records and staff are spelled out

in Sec. 1717.1204(b)(3).

Debt settlement measures that could be used under proposed

Sec. 1717.1204 would include, but not be limited to, reamortization of

debt; extension of debt maturity; reduction in the interest rate

charged; forgiveness of interest accrued, penalties, and the

government's cost of collection; and with the concurrence of the Under

Secretary for Rural Development, forgiveness of loan principal. They

would also include restructuring a borrower's obligations under a loan

guaranteed by RUS, by RUS acquiring and restructuring the guaranteed

loan, by restructuring the loan guarantee obligation and/or the

borrower's reimbursement obligations, or by other means, subject to any

consents or approvals required by the third party lenders.

The borrower or the independent consultant could be

required to solicit competitive bids for the borrower's system. The

Administrator could use the competitive bids received as a basis for

requiring the sale of all or part of the borrower's system as a

condition of settlement of the borrower's debt. The Administrator could

also consider the bids in evaluating alternative settlement measures.

The Administrator would not grant debt relief unless

similar relief, on a pro rata basis, is granted by other secured

creditors of the borrower, or they provide other benefits or value to

the restructuring. Unsecured creditors would also be expected to

contribute to the restructuring. If it is not possible to obtain the

expected contributions from other creditors, the Administrator could

proceed to settle a borrower's debt if that would maximize recovery by

the government and would not result in material benefits accruing to

other creditors at the expense of the government.

The Administrator could consider several methods for

determining the value of a borrower's assets. In no case would the

Administrator settle a debt or claim for less than the value (after

considering collection costs) of the borrower's system and other

collateral securing the debt or claim. In the case of a power supply

borrower, the value of the wholesale power contracts between the

borrower and its member systems would be considered. The valuation of

the wholesale power contracts would take into account, among other

matters, the rights of the government, and/or third parties, to assume

the rights and obligations of the borrower under such contracts, to

charge reasonable rates for service provided under the contracts, and

to otherwise enforce the contracts in accordance with their terms.

The Administrator would consider the rates charged for

electric service by the borrower and, in the case of a power supply

borrower, by its members, taking into account, among other factors, the

practices of the Federal Energy Regulatory Commission (FERC), as

adapted to the cooperative structure of borrowers, and, where

applicable, FERC treatment of any investments by co-owners in projects

jointly owned by the borrower.

The Administrator would consider whether a settlement is

favorable to the government in comparison with what can be recovered by

enforced collection procedures.

Before any settlement is approved, the borrower would be

required to obtain all approvals required of regulatory bodies that are

needed for the borrower to fulfill its obligations under the

settlement.

As a condition of debt settlement, the borrower, and in

the case of a power supply borrower, its members, would be required to

implement changes in management, operations, and performance if

requested by the Administrator. The borrower could be required to

undertake a corporate restructuring and/or sell a portion of its plant,

facilities, or other assets. The borrower could also be required to

replace senior management and/or hire outside experts acceptable to the

Administrator. This could include a commitment by the borrower's board

of directors to restructure and/or obtain new members on the board. The

borrower could be required to accept controls on general funds, as well

as on any investments, loans or guarantees, notwithstanding any

limitations on RUS' control rights in the borrower's loan documents or

RUS regulations. Certain actions could also be required of the borrower

to perfect and protect the government's lien on cash deposits,

securities, and other assets. In the case of a power supply borrower,

the borrower could be required to obtain credit support as well as

pledges and action plans from its members regarding changes in

operations, management, and organizational structure to reduce the

member's operating costs, improve their efficiency, and/or expand their

markets and revenues.

As a condition of debt settlement, a borrower could be

required to convey some or all of its assets to the government.

Finally, RUS will require that the borrower warrant and

agree that no

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bonuses or similar extraordinary compensation has been or will be

provided, for reasons related to the settlement of government debt, to

any officer or employee of the borrower or to other persons or entities

identified by RUS. RUS may impose such other terms and conditions of

debt settlement as RUS deems to be in the government's interests.

Section 1717.1205 Waiver of Existing Conditions on Borrowers

This section would allow the Administrator to waive or otherwise

reduce conditions and requirements imposed on a borrower by its loan

documents if the Administrator determines that that would enhance the

recovery of debt by the government. Such waivers and reductions might

include a variety of actions, but could not include the debt settlement

measures proposed in paragraph (c) of Sec. 1717.1204, which would be

subject to all of the requirements of Sec. 1717.1204.

Section 1717.1206 Loans Subsequent to Settlement

Under this section, in considering any loan request subsequent to a

debt settlement, the Administrator would presume that credit support

for the full amount of the requested loan is needed. The credit support

could be in a number of forms, provided that they are acceptable to the

Administrator.

Section 1717.1207 RUS Obligations Under Loan Guarantees

This section would clarify that RUS' obligations under loan

guarantee commitments to the Federal Financing Bank (FFB) and other

lenders are not affected by the proposed rule. For example, if RUS

settles a guaranteed loan of the FFB, RUS' obligation under its

guarantee to the FFB to make up any shortfall in payments on that loan

would remain in force.

Section 1717.1208 Government's Rights Under Loan Documents

This section would clarify that the proposed rule does not limit,

modify, or otherwise affect the rights of the government under the loan

documents executed with borrowers, or under law or equity.

Information Collection and Recordkeeping Requirements

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.

Chapter 35, as amended) RUS is requesting comments on the information

collection incorporated in this proposed rule.

Comment on this information collection must be received by May 2,

1997.

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; (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 respondents,

including through the use of automated collection techniques or other

forms of information technology.

FOR FURTHER INFORMATION CONTACT: Dawn Wolfgang, Program Support and

Regulatory Analysis, U.S. Department of Agriculture, Rural Utilities

Service, Ag Box 1522, 1400 Independence Avenue, SW., Washington, DC

20250-1522. Telephone: 202-720-0812. FAX: 202-720-4120. E-mail:

[email protected].

Title: 7 CFR 1717 subpart Y, Settlement of Debt Owed by Electric

Borrowers.

Type of request: New information collection.

Abstract: The information collection required by this proposed rule

stems from passage of Pub. L. 104-127, which amended section 331(b) of

the Consolidated Farm and Rural Development Act (7 U.S.C. 1921 et seq.)

to extend to RUS loans and loan guarantees the Secretary of

Agriculture's authority to settle debts. Only those electric borrowers

that are unable to fully repay their debts to the government and who

apply to RUS for relief will be affected by this proposed information

collection.

The proposed collection will require only that information which is

essential for determining the need for debt settlement, the amount of

debt the borrower can repay, the future scheduling of debt repayment,

and the range of opportunities for enhancing the amount of debt that

can be recovered. The information to be collected will be similar to

that which any prudent lender would require to determine whether debt

settlement is required and the amount of relief that is needed. Since

the need for relief is expected to vary substantially from case to

case, so will the required information collection.

Estimate of burden: Public reporting burden for this collection of

information is estimated to average 3,000 hours per response.

Respondents: Businesses, including not for profit cooperatives and

others.

Estimated number of respondents each year: 2.

Estimated number of responses per respondent: 1.

Estimated total annual burden on respondents: 6,000 hours.

Copies of this information collection can be obtained from Dawn

Wolfgang, Program Support and Regulatory Analysis, Rural Utilities

Service. Phone: 202-720-0812.

Send comments regarding this information collection requirement to

the Office of Information and Regulatory Affairs, Office of Management

and Budget, ATTN: Desk Officer, USDA, Room 10102 New Executive Office

Building, Washington, DC 20503, and to Dawn Wolfgang, Program Support

and Regulatory Analysis, U.S. Department of Agriculture, Rural

Utilities Service, 1400 Independence Ave, SW, Ag Box 1522, Washington,

DC 20250-1522.

Comments are best assured of receiving fullest consideration if OMB

receives them within 30 days of publication in the Federal Register.

All comments will become a matter of public record.

List of Subjects in 7 CFR Part 1717

Administrative practice and procedure, Claims, Electric power,

Electric utilities, Intergovernmental relations, Investments, Lien

accommodation, Lien subordination, Loan programs--energy, Reporting and

recordkeeping requirements, Rural areas.

For reasons explained in the preamble, RUS proposes to amend 7 CFR

chapter XVII by amending part 1717 as follows:

PART 1717--POST-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND

GUARANTEED ELECTRIC LOANS

1. The authority citation for part 1717 is revised to read as

follows:

Authority: 7 U.S.C. 901-950b, 1981; Pub. L. 99-591, 100 Stat.

3341-16; Pub. L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.),

unless otherwise noted.

2. Subparts T through X are added and reserved and subpart Y is

added to read as follows:

Subpart T--[Reserved]

Sec.

1717.950--1717.999 [Reserved]

Subpart U--[Reserved]

Sec.

1717.1000--1717.1049 [Reserved]

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Subpart V--[Reserved]

Sec.

1717.1050--1717.1099 [Reserved]

Subpart W--[Reserved]

Sec.

1717.1100--1717.1149 [Reserved]

Subpart X--[Reserved]

Sec.

1717.1150--1717.1199 [Reserved]

Subpart Y--Settlement of Debt

Sec.

1717.1200 Purpose and scope.

1717.1201 Definitions.

1717.1202 General policy.

1717.1203 Relationship between RUS and Department of Justice.

1717.1204 Policies and conditions applicable to settlements.

1717.1205 Waiver of existing conditions on borrowers.

1717.1206 Loans subsequent to settlement.

1717.1207 RUS obligations under loan guarantees.

1717.1208 Government's rights under loan documents.

Subpart T--[Reserved]

Secs. 1717.950--1717.999 [Reserved]

Subpart U--[Reserved]

Secs. 1717.1000--1717.1049 [Reserved]

Subpart V--[Reserved]

Secs. 1717.1050--1717.1099 [Reserved]

Subpart W--[Reserved]

Secs. 1717.1100--1717.1149 [Reserved]

Subpart X--[Reserved]

Secs. 1717.1150--1717.1199 [Reserved]

Subpart Y--Settlement of Debt

Sec. 1717.1200 Purpose and scope.

(a) Section 331(b) of the Consolidated Farm and Rural Development

Act (Con Act), as amended on April 4, 1996 by Public Law 104-127 (7

U.S.C. 1981), grants authority to the Secretary of Agriculture to

compromise, adjust, reduce, or charge-off debts or claims arising from

loans made or guaranteed under the Rural Electrification Act of 1936,

as amended (RE Act). Section 331(b) of the Con Act also authorizes the

Secretary of Agriculture to adjust, modify, subordinate, or release the

terms of security instruments, leases, contracts, and agreements

entered into or administered by the Rural Utilities Service (RUS). The

Secretary, in 7 CFR 2.47, has delegated authority under section 331(b)

of the Con Act to the Administrator of the RUS, with respect to loans

made or guaranteed by RUS.

(b) This subpart sets forth the policy and standards of the

Administrator of RUS with respect to the settlement of debts and claims

arising from loans made or guaranteed to rural electric borrowers under

the RE Act. Nothing in this subpart limits the Administrator's

authority under section 12 of the RE Act.

Sec. 1717.1201 Definitions.

Terms used in this subpart that are not defined in this section

have the meanings set forth in 7 CFR part 1710. In addition, for the

purposes of this subpart:

Attorney General means the Attorney General of the United States of

America.

Claim means any claim of the government arising from loans made or

guaranteed under the RE Act.

Con Act means the Consolidated Farm and Rural Development Act (7

U.S.C. 1921 et seq.).

Debt means outstanding debt of a rural electric borrower (including

principal, accrued interest, penalties, and the government's costs of

debt collection) owed to the government and arising from loans made or

guaranteed under the RE Act.

Enforced collection procedures means any procedures available to

the Administrator for the collection of debt that are authorized by

law, in equity, or under the borrower's loan documents or other

agreements with RUS.

Loan documents means the mortgage (or other security instrument

acceptable to RUS), the loan contract, and the promissory note entered

into between the borrower and RUS.

RE Act means the Rural Electrification Act of 1936, as amended (7

U.S.C. 901-950b).

Restructure means to settle a debt or claim.

Settle means to reamortize, adjust, compromise, reduce, or charge-

off debt or claims owed to the government by rural electric borrowers.

Sec. 1717.1202 General policy.

(a) It is the policy of the Administrator that, wherever possible,

all debt owed shall be collected in full in accordance with the terms

of the borrower's loan documents.

(b) Nothing in this subpart by itself modifies, reduces, waives, or

eliminates any obligation of a borrower under its loan documents. Any

such modifications regarding the debt owed by a borrower may be granted

under the authority of the Administrator only by means of the explicit

written approval of the Administrator in each case.

(c) The Administrator's authority to settle debts and claims will

apply to cases where a borrower is unable to pay its debts and claims

in accordance with their terms, and where settlement will maximize the

recovery of debts and claims owed to the government.

(d) In structuring settlements and determining the amount of debt

recovery that is possible, the Administrator will consider, among other

factors, the RE Act, the National Energy Policy Act of 1992 (Public Law

102-486, 106 Stat. 2776), the policies and regulations of the Federal

Energy Regulatory Commission, and other market and nonmarket forces as

to their effects on competition in the electric utility industry and on

rural electric systems in particular.

Sec. 1717.1203 Relationship between RUS and Department of Justice.

(a) The Attorney General will be notified by the Administrator

whenever the Administrator intends to use his or her authority under

section 331(b) of the Con Act to settle a debt or claim.

(b) If a claim has been referred in writing to the Attorney

General, the Administrator will not use his or her own authority to

settle the claim.

Sec. 1717.1204 Policies and conditions applicable to settlements.

(a) General. Settlement of debts and claims shall be subject to the

policies, requirements, and conditions set forth in this section and in

Sec. 1717.1202.

(b) Need for debt settlement. (1) The Administrator will not settle

any debt or claim unless the Administrator has determined that the

borrower is unable to meet its financial obligations under its loan

documents according to the terms of those documents, or that the

borrower will not be able to meet said obligations sometime within the

period of 24 months following the borrower's application for relief,

and such default is likely to continue beyond the 24 month period. The

determination of a borrower's ability to meet its financial obligations

will be based on analyses and documentation by RUS of the borrower's

historical, current, and projected costs, revenues, cash flows, assets,

and other factors that may be relevant on a case by case basis.

(2) The borrower must provide to RUS, in form and substance

satisfactory to RUS, an in-depth analysis supporting the borrower's

contention that it is unable or will not be able to meet its financial

obligations as described in paragraph (b)(1) of this section. The

analysis must include:

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(i) An explanation and analysis of the causes of the borrower's

inability to meet its financial obligations;

(ii) A thorough review and analysis of the opportunities available

or potentially available to the borrower to reduce administrative

overhead and other costs, improve efficiency and effectiveness, and

expand markets and revenues, including but not limited to opportunities

for sharing services, merging, and/or consolidating. In the case of a

power supply borrower, the study shall include such opportunities among

the members of the borrower;

(iii) Documentation of the actions taken, in progress, or planned

by the borrower (and its member systems, if applicable) to take

advantage of the opportunities cited in paragraph (b)(2)(ii) of this

section; and

(iv) Other analyses and documentation prescribed by RUS on a case

by case basis.

(3) RUS may require that an independent consultant provide an

analysis of the efficiency and effectiveness of the borrower's

organization and operations, and those of its member systems in the

case of a power supply borrower. The following conditions will apply:

(i) RUS will select the independent consultant taking into account,

among other matters, the consultant's experience and expertise in

matters relating to electric utility operations, finance, and

restructuring;

(ii) The contract with the consultant shall be to provide services

to RUS on such terms and conditions as RUS deems appropriate. The

consultant's scope of work may include, but shall not be limited to, an

analysis of the following:

(A) How to maximize the value of the government's collateral, such

as through mergers, consolidations, or sales of all or part of the

collateral;

(B) The viability of the borrower's system, taking into account

such matters as system size, service territory and markets, asset base,

physical condition of the plant, operating efficiency, competitive

pressures, industry trends, and opportunities to expand markets and

improve efficiency and effectiveness;

(C) The feasibility and the potential benefits and risks to the

borrower and the government of corporate restructuring, including

aggregation and disaggregation;

(D) In the case of a power supply borrower, the retail rate mark-up

by member systems and the potential benefits to be achieved by member

restructuring through mergers, consolidations, shared services, and

other alliances;

(E) The quality of the borrower's management, management advisors,

consultants, and staff;

(F) Opportunities for reducing overhead and other costs, for

realizing economies through marketing, and for improving the borrower's

existing and prospective contractual arrangements for the purchase and

sale of power and the operation of plant and facilities; and

(G) The accuracy and completeness of the borrower's analysis

provided under paragraph (b)(2) of this section;

(iii) RUS and, as appropriate, other creditors, will determine the

extent to which the borrower and third parties (including the members

of a power supply borrower) will be required to participate in funding

the costs of the independent consultant;

(iv) The borrower will be required to make available to the

consultant all corporate documents, files, and records, and to provide

the consultant with access to key employees. The borrower will also

normally be required to provide the consultant with office space

convenient to the borrower's operations and records; and

(v) All analyses, studies, opinions, memoranda, and other documents

and information produced by the independent consultant shall be

provided to RUS on a confidential basis for consideration in evaluating

the borrower's application for debt settlement. Such documents and

information may be made available to the borrower and other appropriate

parties if authorized in writing by RUS.

(4) The borrower may be required to employ a temporary or permanent

manager acceptable to the Administrator, to manage the borrower's

operations to ensure that all actions are taken to avoid or minimize

the need for debt settlement. The employment could be on a temporary

basis to manage the system during the time the debt settlement is being

considered, and possibly for some time after any debt settlement, or it

could be on a permanent basis.

(c) Debt settlement measures. (1) If the Administrator determines

that debt settlement is appropriate, the debt settlement measures the

Administrator will consider under this subpart with respect to direct,

insured, or guaranteed loans include, but are not limited to, the

following:

(i) Reamortization of debt;

(ii) Extension of debt maturity, provided that the weighted average

life of the restructured debt shall not exceed the weighted average of

the expected remaining useful lives of the assets pledged as security

for said debt;

(iii) Reduction of the interest rate charged on the borrower's

debt, provided that the interest rate on any portion of the

restructured debt shall not be reduced to less than 5 percent;

(iv) Forgiveness of interest accrued, penalties, and costs incurred

by the government to collect the debt; and

(v) With the concurrence of the Under Secretary for Rural

Development, forgiveness of loan principal.

(2) In the event that RUS has, under section 306 of the RE Act,

guaranteed loans made by the Federal Financing Bank or other third

parties, the Administrator may restructure the borrower's obligations

by acquiring and restructuring the guaranteed loan, by restructuring

the loan guarantee obligation, by restructuring the borrower's

reimbursement obligations, or by such means as the Administrator deems

appropriate, subject to such consents and approvals, if any, that may

be required by the third party lender.

(d) Debt owed by other creditors. The Administrator will not grant

relief on debt owed to the government unless similar relief, on a pro

rata basis, is granted with respect to other secured debt owed by the

borrower, or the other secured creditors provide other benefits or

value to the debt restructuring. Unsecured creditors will also be

expected to contribute to the restructuring. If it is not possible to

obtain the expected contributions from other creditors, the

Administrator may proceed to settle a borrower's debt if that will

maximize recovery by the government and will not result in material

benefits accruing to other creditors at the expense of the government.

(e) Competitive bids for system assets. If requested by RUS, the

borrower or the independent consultant provided for in paragraph (b)(3)

of this section shall solicit competitive bids from potential buyers of

the borrower's system or parts thereof. The bidding process must be

conducted in consultation with RUS and use standards and procedures

acceptable to RUS. The Administrator may use the competitive bids

received as a basis for requiring the sale of all or part of the

borrower's system as a condition of settlement of the borrower's debt.

The Administrator may also consider the bids in evaluating alternative

settlement measures.

(f) Valuation of system. (1) The Administrator will consider the

value of the borrower's system, including, in the case of a power

supply borrower, the wholesale power contracts between the borrower and

its member systems. The

[[Page 9387]]

valuation of the wholesale power contracts shall take into account,

among other matters, the rights of the government, and/or third

parties, to assume the rights and obligations of the borrower under

such contracts, to charge reasonable rates for service provided under

the contracts, and to otherwise enforce the contracts in accordance

with their terms. In no case will the Administrator settle a debt or

claim for less than the value (after considering collection costs) of

the borrower's system and other collateral securing the debt or claim.

(2) RUS may use such methods, analyses, and assessments as the

Administrator deems appropriate to determine the value of the

borrower's system.

(g) Rates. The Administrator will consider the rates charged for

electric service by the borrower and, in the case of a power supply

borrower, by its members, taking into account, among other factors, the

practices of the Federal Energy Regulatory Commission (FERC), as

adapted to the cooperative structure of borrowers, and, where

applicable, FERC treatment of any investments by co-owners in projects

jointly owned by the borrower.

(h) Collection action. The Administrator will consider whether a

settlement is favorable to the government in comparison with the amount

that can be recovered by enforced collection procedures.

(i) Regulatory approvals. Before the Administrator will approve a

settlement, the borrower must provide satisfactory evidence that it has

obtained all approvals required of regulatory bodies that are needed to

implement rates or other provisions of the settlement, or that are

needed in any other way for the borrower to fulfill its obligations

under the settlement.

(j) Conditions regarding management and operations. As a condition

of debt settlement, the borrower, and in the case of a power supply

borrower, its members, will be required to implement those changes in

structure, management, operations, and performance deemed necessary by

the Administrator. Those changes may include, but are not limited to,

the following:

(1) The borrower may be required to undertake a corporate

restructuring and/or sell a portion of its plant, facilities, or other

assets;

(2) The borrower may be required to replace senior management and/

or hire outside experts acceptable to the Administrator. Such changes

may include a commitment by the borrower's board of directors to

restructure and/or obtain new membership to improve board oversight and

leadership;

(3) The borrower may be required to agree to:

(i) Controls by RUS on the general funds of the borrower, as well

as on any investments, loans or guarantees by the borrower,

notwithstanding any limitations on RUS' control rights in the

borrower's loan documents or RUS regulations; and

(ii) Requirements deemed necessary by RUS to perfect and protect

its lien on cash deposits, securities, equipment, vehicles, and other

items of real or non-real property; and

(4) In the case of a power supply borrower, the borrower may be

required to obtain credit support from its member systems, as well as

pledges and action plans by the members to change their operations,

management, and organizational structure (e.g., shared services,

mergers, or consolidations) in order to reduce operating costs, improve

efficiency, and/or expand markets and revenues.

(k) Conveyance of assets. As a condition of a settlement, a

borrower may be required to convey some or all its assets to the

government.

(l) Additional conditions. The borrower will be required to warrant

and agree that no bonuses or similar extraordinary compensation has

been or will be provided, for reasons related to the settlement of

government debt, to any officer or employee of the borrower or to other

persons or entities identified by RUS. The Administrator may impose

such other terms and conditions of debt settlement as the Administrator

determines to be in the government's interests.

Sec. 1717.1205 Waiver of existing conditions on borrowers.

Pursuant to section 331(b) of the Con Act, the Administrator, at

his or her sole discretion, may waive or otherwise reduce conditions

and requirements imposed on a borrower by its loan documents if the

Administrator determines that such action will contribute to

enhancement of the government's recovery of debt. Such waivers or

reductions in conditions and requirements under this section shall not

include the exercise of any of the debt settlement measures set forth

in Sec. 1717.1204(c), which are subject to all of the requirements of

Sec. 1717.1204.

Sec. 1717.1206 Loans subsequent to settlement.

In considering any future loan requests from a borrower whose debt

has been restructured (settled), it will be presumed that credit

support for the full amount of the requested loan will be required.

Such support may be in a number of forms, provided that they are

acceptable to the Administrator on a case by case basis. They may

include, but need not be limited to, equity infusions and guarantees of

debt repayment, either from the applicant's members (in the case of a

power supply borrower), or from a third party.

Sec. 1717.1207 RUS obligations under loan guarantees.

Nothing in this subpart affects the obligations of RUS under loan

guarantee commitments it has made to the Federal Financing Bank or

other lenders.

Sec. 1717.1208 Government's rights under loan documents.

Nothing in this subpart limits, modifies, or otherwise affects the

rights of the government under loan documents executed with borrowers,

or under law or equity.

Dated: February 24, 1997.

Jill Long Thompson,

Under Secretary, Rural Development.

[FR Doc. 97-5137 Filed 2-28-97; 8:45 am]

BILLING CODE 3410-15-P