Railroad Rehabilitation and Improvement Financing Program; Proposed Revisions

DEPARTMENT OF TRANSPORTATION

Federal Railroad Administration

49 CFR Part 260

[Docket No. FRA 1999-5663]

RIN 2130-AB26

Railroad Rehabilitation and Improvement Financing Program;

Proposed Revisions

AGENCY: Federal Railroad Administration (FRA), Department of

Transportation (DOT).

ACTION: Notice of Proposed Rulemaking (NPRM).

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SUMMARY: Section 7203 of the Transportation Equity Act for the 21st

Century (``TEA 21'') amends Title V of the Railroad Revitalization and

Regulatory Reform Act of 1976, as amended (``Act'') by replacing the

railroad financing programs (the purchase of preference shares and the

issuance of loan guarantees) with a new loan and loan guarantee

program. Section 7203 authorizes the Secretary of Transportation

(``Secretary'') to provide direct loans and loan guarantees to State

and local governments, government sponsored authorities and

corporations, railroads, and joint ventures that include at least one

railroad. The Secretary has delegated his authority to the FRA

Administrator. The following types of projects are eligible for

financing under Title V, as revised: acquisition, improvement or

rehabilitation of intermodal or rail equipment or facilities (including

tracks, components of tracks, bridges, yards, buildings, and shops),

refinancing outstanding debt incurred for these purposes, or

development or establishment of new intermodal or railroad facilities.

The aggregate unpaid principal amounts of obligations cannot exceed

$3.5 billion at any one time and not less that $1 billion is to be

available solely for projects benefiting freight railroads other than

Class I carriers.

The NPRM would strike the language in existing part 260 (the Title

V loan guarantee program), and replace it with new procedures and

requirements to cover applications of financial assistance in the form

of direct loans and loan guarantees consistent with the changes in

Title V made by section 7203.

DATES: (1) Written comments: Written comments must be received no later

than June 21, 1999. Comments received after that date will be

considered to the extent possible without incurring additional expense

or delay.

(2) Hearing: Because the NPRM tracks the statutory language, FRA

does not intend to schedule a public hearing.

(3) Proposed effective date: The revisions to part 260 are proposed

to become effective thirty days after date of publication of the final

rule.

ADDRESSES: The public is invited to submit written comments on the

NPRM. The proposals contained in the NPRM may be changed in light of

the comments received. Written comments should refer to the docket

number of this notice and be submitted in duplicate to: DOT Central

Docket Management Facility located in room PL-401 at the Plaza level of

the Nassif Building, 400 Seventh Street, S.W., Washington, D.C. 20590.

All docket material will be available for inspection at this address

and on the Internet at http://dms.dot.gov. Docket hours at the Nassif

Building are Monday-Friday, 10 a.m. to 5 p.m., excluding Federal

holidays. Those desiring notification of receipt of comments must

include a self-addressed, stamped envelope or postcard.

FOR FURTHER INFORMATION CONTACT: JoAnne M. McGowan, Chief of Freight

Programs Division, RDV-12, Office of Passenger and Freight Services,

FRA, 1120 Vermont Avenue, NW, Mailstop 20, Washington, D.C. 20590

(telephone 202-493-6336), or Joseph R. Pomponio, Senior Attorney,

Office of Chief Counsel, FRA, 1120 Vermont Avenue, NW, Mailstop 10,

Washington, D.C. 20590 (telephone 202-493-6336).

SUPPLEMENTARY INFORMATION:

Background

Prior to the enactment of TEA 21, Title V of the Act, 45 U.S.C. 821

et seq., authorized FRA to provide railroad financial assistance

through the purchase of preference shares (45 U.S.C. 825), and the

issuance of loan guarantees (45 U.S.C. 831). The FRA regulations

implementing the preference share program were eliminated on February

9, 1996, due to the fact that the authorization for the program expired

(28 FR 4937). The FRA regulations implementing the loan guarantee

provisions of Title V of the Act are contained in 49 CFR Part 260.

Section 7203 of TEA 21, Pub. L. No. 105-178 (June 9, 1998),

replaces the existing Title V financing programs.

[[Page 27489]]

This NPRM strikes the language in existing part 260 and replaces it

with new procedures and requirements to cover applications of financial

assistance in the form of direct loans and loan guarantees consistent

with the changes made to Title V of the Act by section 7203 of TEA 21.

The revised program is referred to in TEA 21 as the Railroad

Rehabilitation and Improvement Financing (``RRIF Program''). The RRIF

Program authorizes the Secretary to provide direct loans and loan

guarantees to State and local governments, government sponsored

authorities and corporations, railroads, and joint ventures that

include at least one railroad. The following type of projects are

eligible for financing: (1) Acquisition, improvement or rehabilitation

of intermodal or rail equipment or facilities (including tracks,

components of tracks, bridges, yards, buildings, and shops), (2)

refinancing outstanding debt incurred for these purposes; or (3)

development or establishment of new intermodal or railroad facilities.

The term ``intermodal'' means of or relating to the connection between

rail service and other modes of transportation, including all parts of

facilities at which such connection is made. Loans and loan guarantees

cannot be used for railroad operating expenses. The aggregate unpaid

principal amounts of obligations cannot exceed $3.5 billion at any one

time, and not less that $1 billion is to be available solely for

projects benefitting freight railroads (e.g., other than Class I

carriers).

The Secretary has delegated his authority under the RRIF Program to

the FRA Administrator. In granting applications, FRA is required to

give priority to projects that: (1) Enhance public safety; (2) enhance

the environment; (3) promote economic development; (4) enable United

States companies to be more competitive in international markets; (5)

are endorsed by plans prepared under 23 U.S.C. 135 by the State or

States in which they are located; or (6) preserve or enhance rail or

intermodal service to small communities or rural areas.

Prerequisites to granting financial assistance under the RRIF

Program include:

(1) The financial assistance is required to be repaid within a term

of not more than 25 years;

(2) The financial assistance is justified by the present and

probable future demand for rail services or intermodal facilities;

(3) The applicant has given reasonable assurances that the

facilities or equipment to be acquired, rehabilitated, improved,

developed, or established with the proceeds of the financial assistance

will be economically and efficiently utilized;

(4) The obligation can reasonably be repaid, using an appropriate

combination of credit risk premiums, and collateral offered by the

applicant to protect the Federal Government; and

(5) The purposes of the direct loan or loan guarantee are

consistent with the eligible purposes for which funding can be provided

under the RRIF Program.

The RRIF Program is intended to be a lender of last resort for

railroad applicants. Therefore, all railroad applicants must provide

evidence that financing for the proposed project is not available to

them from lenders in the private sector. This will be done by the

applicants submitting two letters of refusal of financing for the

proposal from commercial lenders and any other lending institution that

has provided credit to the applicant in the past five years.

The Federal Credit Reform Act of 1990, 2 U.S.C. 661 (``Reform

Act''), requires that before making any loan or loan guarantee,

agencies of the Federal Government must have received an appropriation

of funds from Congress adequate to cover the cost to the Government of

making that loan or loan guarantee. Section 502(f) provides that a

source of the subsidy cost may be either appropriated Federal funds,

funds from a non-Federal source, or any combination thereof. For Fiscal

Year 1999, the Administration has not requested, and Congress has not

appropriated funds to provide the subsidy cost for borrowers, and in

the absence of such an appropriation, the Credit Risk Premium

associated with any direct loan or loan guarantee must be provided by

the project applicant or infrastructure partner, which includes any

participant in the project. The Administration has also not requested

appropriated funds to provide the subsidy cost for Fiscal Year 2000.

If an appropriation is ever received for this program, funding

decisions, including the split between appropriations and credit risk

premiums, will be based on the repayability as well as the statutory

priorities. Section 502(c) directs the Secretary to give priority to

projects that: (1) Enhance public safety; (2) enhance the environment;

(3) promote economic development; (4) enable United States companies to

be more competitive in international markets; (5) are endorsed by the

plans prepared under section 134 of title 23, United States code, by

the State or States in which they are located; or preserve or enhance

rail or intermodal service to small communities or rural areas. FRA

will evaluate each project request and allocate appropriated funds

based on the contribution of a project to the statutory priorities.

Under the RRIF Program, FRA is to determine the amount of the

Credit Risk Premium on the basis of: (1) The circumstances of the

applicant, including the amount of collateral offered; (2) the proposed

schedule of loan disbursements; (3) historical data on the repayment

history of similar borrowers; (4) consultation with the Congressional

Budget Office; and (5) any other factors FRA considers relevant. The

Credit Risk Premium must be paid before disbursement of any loan or

loan guarantee proceeds. FRA has determined that it will require

collateral, to the extent available, in connection with any loan or

loan guarantee.

Under the provisions of the RRIF Program and of the Office of

Management and Budget (OMB) Circular A-11, FRA is required to group its

direct loans and loan guarantees into cohorts and periodically prepare

an evaluation of loan performance by cohort and a re-estimation of the

funds needed to cover the estimated losses of a cohort. Consistent with

Circular A-11, FRA will establish a separate cohort of loans for each

fiscal year, and each loan or guarantee obligated during the fiscal

year will be placed in that year's cohort. When all obligations in a

cohort have been satisfied or liquidated, the amount of Credit Risk

Premiums remaining in the cohort, after deductions made to mitigate

losses from any loan or loan guarantee in the cohort, together with

interest accrued thereon, will be repaid on a pro rata basis to each

original payor of a Credit Risk Premium for any obligation which was

fully satisfied. The Credit Risk Premium for each direct loan or loan

guarantee is established by estimating the total long-term cost to the

Government of that direct loan or loan guarantee. Therefore, if the

estimates are accurate, all the Credit Risk Premiums in each cohort

will be used to cover losses and none will remain to be returned.

Should losses exceed the total amount of credit risk premiums paid for

each cohort, the losses will be covered by the Government as provided

in the Reform Act.

The RRIF Program provides that FRA must, before granting financial

assistance, require the applicant to agree to such terms and conditions

as are sufficient, in FRA's judgment, to ensure that, as long as any

principal or interest is due and payable on such obligation, the

applicant, and any railroad or

[[Page 27490]]

railroad partner for whose benefit the assistance is intended--

(1) Will not use any funds or assets from railroad or intermodal

operations for purposes not related to such operations, if such use

would impair the ability of the applicant, railroad, or railroad

partner to provide rail or intermodal services in an efficient and

economic manner, or would adversely affect the ability of the

applicant, railroad, or railroad partner to perform any obligation

entered into by the applicant under the RRIF Program;

(2) Will, consistent with its capital resources, maintain its

capital program, equipment, facilities, and operations on a continuing

basis; and

(3) Will not make any discretionary dividend payments that

unreasonably conflict with the eligible purposes for which loan or loan

guarantees can be made under the RRIF Program.

As can be seen from the foregoing discussion, the RRIF Program

provides for loan and loan guarantees for a wide variety of projects,

including safety improvements such as the rehabilitation of rail

freight lines and bridges as well as the elimination of grade

crossings.

While any railroad is eligible for financial assistance for a

project under the RRIF Program, a key component of the program is the

$1 billion dollars reserved for railroad projects benefitting non-Class

I freight railroads. The more than 650 shortline and regional railroads

connect rural and small communities to the economic mainstream of North

America. Collectively, these railroads operate more than 47,000 miles

of track. Their mileage exceeds the 46,000 mile Interstate Highway

System. Congress directed the RRIF program to make available loans and

loan guarantees to support these small railroads.

From 1986 through 1991, small railroads experienced over 3 track-

related accidents for every million miles operated. During the same

period, major railroads had only 1.45 track-related accidents for every

million miles operated. Since 1991, the situation has worsened. From

1992 through 1996, shortline and regional railroads experienced more

than 5 track-related accidents per million miles operated while major

railroads had only 1.28.

A recent survey by the American Short Line and Regional Rail

Association found that 100 small railroads need $950 million in

external financing to upgrade their track to safely accommodate the

286,000 pound cars that major carriers are now using. Shortline and

regional railroads that cannot safely handle these heavier cars will

lose traffic critical to their viability and continued operation.

Moreover, if these railroads cease to exist, rail traffic will be

diverted to highways accelerating their deterioration and increasing

their reconstruction costs, and adversely affecting the environment.

Without this financing, some track operated by small railroads may be

abandoned and the freight traffic moved by less energy efficient

trucks. This will result in additional air pollution and fuel

consumption, as well as significantly increased highway maintenance

costs. RRIF funding will strengthen the linkage between transportation

and environmental policy by helping to ensure the continuation of

energy efficient rail freight service. In addition to their track

needs, small railroads require financing for equipment. Approximately,

87 percent of the locomotives used by shortline and regional railroads

are more than 20 years old and only 1 percent is less than 10 years

old. In comparison, 31 percent of the locomotives used by major

railroads are less than 10 years old. Only 32 percent are more than 20

years old.

A 1993 study conducted by FRA entitled ``Small Railroad Investment

Goals and Financial Options'' (``FRA Study'') found that small

railroads face unique problems and difficulties in securing private

financing: ``According to the banking industry, it takes an inordinate

amount of work to prepare a small railroad loan package, compared to a

similar-sized loan for other businesses. Unlike many similar-sized

businesses that need short-term loans for inventory or working-capital,

small railroads need long-term financing for long-lived assets such as

track materials and equipment. Even when private financing could be

obtained, these railroads felt that the terms offered were

unsatisfactory. In particular, loans were usually offered for not more

than 8 years, too short a term for railroad investments that have a

much longer productive life.'' (FRA Study at pg. iii and iv.) The study

also confirmed that because differences in bankruptcy law treatment of

railroads make it more difficult to recover the proceeds of a railroad

loan after a bankruptcy or default than a debt owed by a non-railroad

borrower, lending to small railroads has been more restrictive than to

Class I railroads or similarly sized entities in other industries. FRA

Study at page v.

Shortline and regional railroad access to private financing has not

improved since FRA's 1993 study. The small railroad's lack of access to

private financing is reflected in their increasing rate of track-

related derailments and the age of their equipment.

Tax Status of Loan Guarantees

TEA-21 did not amend the provisions in section 149(b) of the

Internal Revenue Code that prohibits the use of direct or indirect

Federal guarantees of tax-exempt obligations. Accordingly, the interest

income on any project loan that is directly or indirectly Federally

guaranteed under section 502 of the Act shall not be exempt from

Federal income taxation.

Regulatory Impact

E.O. 12866 and DOT Regulatory Policies and Procedures

This NPRM has been evaluated in accordance with existing regulatory

policies and is considered to be significant within the meaning of

Executive Order 12866 and is a significant rule under the DOT

regulatory policies and procedures (44 FR, February 26, 1979). This

determination is based on a finding that the rule may have an annual

effect on the economy of $100 million or more until the outstanding

principal cap of $3.5 billion is reached.

The financing being made available through the regulatory action

will provide economic, safety, and environmental benefits. Of the $3.5

billion, $1 billion is reserved for projects benefitting small

railroads. Shortline and regional railroads are one of the

transportation modes that connect rural America and small communities

to the national railroad system.

Prospective borrowers will normally have available the information

needed to prepare applications for funding so these costs also will be

minimal. While successful applicants will be required to provide Credit

Risk Premiums, the amount of financing obtained will substantially

exceed the costs of the Credit Risk Premiums.

On this basis, the DOT has concluded that the RRIF program will

generate both direct and indirect benefits, including reduced

congestion, improved safety, an enhanced environment, and greater

economic growth. These benefits are anticipated to far surpass the

minimal combined direct costs to the Federal Government and to the

entities that elect to participate in the program. Because of the

voluntary nature of participation in the RRIF program, this regulatory

action is not anticipated to impose any direct costs upon non-

participants.

The DOT requests comments, information, and data from the public

and potential users concerning the

[[Page 27491]]

economic impact of implementing this rule and the RRIF program.

Regulatory Flexibility Act

The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.)

requires a review of rules to assess their impact on small entities.

FRA is not able to certify that this proposed rule would not have a

significant impact on a substantial number of small entities and seeks

comments from the public. FRA has conducted a regulatory flexibility

assessment of this rule's impact on small entities and has found that

this action benefits small entities such as governments and railroads.

The financing being made available through this rule will provide

economic, safety, and environmental benefits. Moreover, participation

in the RRIF program is voluntary.

For government entities the definition of small entities is based

on population served. As defined by the Small Business Administration

(SBA) this term means governments of cities, counties, towns,

townships, villages, school districts, or special districts with a

population of less than fifty thousand. It is not possible to determine

the number of small government entities that may be involved in

applications seeking financial assistance under the RRIF program.

However, it is not likely that small governmental entities will

seek financial assistance under the RRIF Program. In response to a

public notice on the enactment of the Program, only large metropolitan

areas, like the City of Indianapolis and the Memphis and Shelby County

Port Commission, indicated an interest in RRIF financing. At the same

time, small governmental entities will likely benefit from the economic

opportunities resulting from infrastructure improvements to small

railroads that connect small governmental entities to the national

railroad system. The cost to governmental entities of applying for the

program would be minimal since borrowers will normally have available

the information needed to prepare applications for funding.

In addition to small governmental entities, the small entities

directly affected by this rule are class III railroads. ``Small

entity,'' is defined in 5 U.S.C. 601 as a small business concern that

is independently owned and operated, and is not dominant in its field

of operation. The SBA considers a railroad to be small if it has fewer

than 1,500 employees of ``line-Haul Operating'' Railroads, and 500

employees for ``Switching and Terminal Establishment.'' Table of Size

Standards,'' U.S. Small Business Administration, January 31, 1996, 13

CFR part 121.

Because FRA does not have information regarding the number of

people employed by the railroads, it cannot determine exactly how many

small railroads, by SBA definition, are in operation within the United

States.

Prior to the SBA regulations establishing size categories, the

Interstate Commerce Commission (ICC), developed a classification system

for freight railroads as class I, II, or III, based on annual operating

revenues. A class II railroad has annual operating revenues greater

than or equal to $40 million but less than $255.9 million and a class

III railroad has annual operating revenues less than $40 million. The

Department of Transportation's Surface Transportation Board, which

succeeded the ICC, has not changed these classifications. The ICC

classification system has been used pervasively by FRA and the railroad

industry to identify railroads by size. After consultation with the

Office of Advocacy of the SBA and as explained in detail in the

``Interim Policy Statement Concerning Small Entities Subject to the

Railroad Safety Laws,'' published August 11, 1997 at 62 FR 43024, FRA

has decided to define ``small entity'' on an interim basis to include

only those entities whose revenues would bring them within the class

III definition. As this is still an alternative definition, FRA

requests comments from interested parties on its use.

About 550 of the approximately 700 railroads in the United States

are probably Class III railroads and would be considered small

businesses by FRA. Small railroads that would be affected by the

proposed rule provide less than 10 percent of the industry's

employment, own about 10 percent of the track, and operate less than 10

percent of the ton-miles.

A recent survey by the American Short Line and Regional Railroad

Association found that 100 small railroads need $950 million in

external financing to upgrade their track to safely handle the 286,000

pound cars that the Class I carriers are now using. The amount of need

identified is consistent with the statutory reserve of $1 billion for

non-class I railroads.

While these 100 railroads may seek RRIF financing, the cost will be

minimal since the information needed to complete applications will

normally be available. Moreover, participation in the RRIF Program is

strictly voluntary.

Written public comments that will clarify the number of affected

small entities and what the impacts will be for the affected small

entities are requested. FRA especially encourages small railroads and

governmental jurisdictions that are considered to be small entities to

participate in the comment process and submit written comments to the

docket.

Paperwork Reduction Act

The information collection requirements in this proposed rule will

be submitted for approval to OMB under the Paperwork Reduction Act of

1995, 44 U.S.C. 3501 et seq. The DOT has not yet determined the exact

burden-hour impact of the information collection requirements that will

be an integral part of the program application process. The PRA

approval request to OMB will include our estimate of the information

collection burden associated with the requirements in this proposed

rule. The Department expects to submit a paperwork package to OMB and

provide notice in the Federal Register shortly. DOT is committed to

minimizing any paperwork burden imposed on program applicants. An OMB

control number, when assigned, will be published in the Federal

Register. FRA is not authorized to impose a penalty on persons for

violating information requirements which do not display a current OMB

control number.

Environmental Impact

FRA has evaluated this regulation in accordance with its procedures

for ensuring full consideration of the potential environmental impacts

of FRA actions, as required by the National Environmental Policy Act

(42 U.S.C. 4321 et seq.), other environmental statutes, Executive

Orders, and related directives. This regulation meets the criteria that

establish this as a non-major action for environmental purposes.

Federalism Implications

This rule will not have a substantial effect on the States, on the

relationship between the Federal Government and the States, or on the

distribution of power and responsibilities among the various levels of

government. Thus, in accordance with Executive Order 12612, preparation

of a Federalism Assessment is not warranted.

Electronic Access

Internet users can access all comments received by the U.S. DOT

Dockets, Room PL-401, by using the universal resource locator (URL):

http://dms.dot.gov. It is available 24 hours each day, 365 days each

year. Please follow the instructions online for more information and

help.

[[Page 27492]]

An electronic copy of this document may be downloaded using a modem

and suitable communication software from the Government Printing Office

Electronic Bulletin Board Service at (202) 512-1661. Internet users may

reach the Federal Register's home page at: http://www.nara.gov/fedreg

and the Government Printing Office's database at: http://

www.access.gpo.gov/nara.

List of Subjects in 49 CFR Part 260

Federal Railroad Administration, Grant programs--transportation,

Railroads.

The Proposed Rule

In consideration of the foregoing, FRA proposes revising part 260

of title 49, Code of Federal Regulations, to read as follows:

PART 260--REGULATIONS GOVERNING LOANS AND LOAN GUARANTEES UNDER THE

RAILROAD REHABILITATION AND IMPROVEMENT FINANCING PROGRAM

Subpart A--Overview

Sec.

260.1 Program authority.

260.3 Definitions.

260.5 Eligible purposes.

260.7 Priority consideration.

260.9 Loan terms.

260.11 Investigation charge.

260.13 Credit reform.

260.15 Credit risk premium.

Subpart B--FRA Policies and Procedures for Evaluating Applications for

Financial Assistance

260.17 Credit risk premium analysis.

260.19 Preapplication meeting.

Subpart C--Applications for Financial Assistance

260.21 Eligibility.

260.23 Form and content of application generally.

260.25 Additional information for applicants not having a credit

rating.

260.27 Additional information for loan guarantees.

260.29 Required exhibits.

260.31 Execution and filing of application.

260.33 Information requests.

260.35 Environmental assessment.

260.37 Waivers and modifications.

Subpart D--Standards for Maintenance of Facilities Involved in the

Project

260.39 Applicability.

260.41 Maintenance standards.

260.43 Inspection and reporting.

260.45 Impact on other laws.

Subpart E--Procedures To Be Followed in the Event of Default

260.47 Events of default for guaranteed loans.

260.49 Events of default for direct loans.

260.51 Avoiding defaults.

Subpart F--Loan Guarantees--Lenders

260.53 Conditions of guarantees.

260.55 Lender's functions and responsibilities.

260.57 Lender's loan servicing.

Authority: 45 U.S.C. 821, 822, 823; 49 CFR 1.49.

Subpart A--Overview

Sec. 260.1 Program authority.

Section 502 of the Railroad Revitalization and Regulatory Reform

Act of 1976, as amended, 45 U.S.C. 821 et seq., authorizes the

Secretary of Transportation to provide direct loans and loan guarantees

to State and local governments, government sponsored authorities and

corporations, railroads, and joint ventures that include at least one

railroad. The Secretary's authority has been delegated to the

Administrator of the Federal Railroad Administration, an agency of the

Department of Transportation.

Sec. 260.3 Definitions.

As used in this part--

(a) Act means the Railroad Revitalization and Regulatory Reform Act

of 1976, as amended, 45 U.S.C. 821 et seq.

(b) Administrator means the Federal Railroad Administrator, or her

or his representative.

(c) Applicant means any State or local government, government

sponsored authority or corporation, railroad, or group of two or more

entities, at least one of which is a railroad, participating in a joint

venture, that submits an application to the Administrator for a direct

loan or the guarantee of an existing obligation under which it is an

obligor or for a commitment to guarantee a new obligation.

(d) Borrower means an Applicant that has been approved for, and has

received, financial assistance under this part.

(e) Credit risk premium means that portion of the total subsidy

cost to the Government of a direct loan or loan guarantee that is not

covered by Federal appropriations and which must be paid by Applicant

or its non-Federal infrastructure partner before that direct loan can

be disbursed or loan guarantee can be issued.

(f) Direct loan means a disbursement of funds by the Government to

a non-federal borrower under a contract that requires the repayment of

such funds.

(g) FRA means the Federal Railroad Administration.

(h) Financial assistance means a direct loan, or a guarantee of a

new loan issued under this part.

(i) Holder means the current owner of an obligation or the entity

retained by the owner to service and collect an obligation which is

guaranteed under the provisions of this part.

(j) Including means including but not limited to.

(k) Infrastructure partner means any non-Federal source of the

Credit Risk Premium which must be paid to the Administrator in lieu of,

or in combination with, an appropriation in connection with financial

assistance provided under this part.

(l) Intermodal means of or relating to the connection between rail

service and other modes of transportation, including all parts of

facilities at which such connection is made.

(m) Lender means the non-Federal entity making a loan to an

Applicant for which a loan guarantee under this part is sought.

(n) Loan guarantee means any guarantee, insurance, or other pledge

with respect to the payment of all or a part of the principal or

interest on any debt obligation of a non-Federal borrower to a non-

Federal lender, but does not include the insurance of deposits, shares,

or other withdrawable accounts in financial institutions.

(o) Obligation means a bond, note, conditional sale agreement,

equipment trust certificate, security agreement, or other obligation.

(p) Obligor means the debtor under an obligation, including the

original obligor and any successor or assignee of such obligor.

(q) Project means the purpose for which financial assistance is

provided.

(r) Railroad means an entity providing common carrier railroad

transportation for compensation, including the National Railroad

Passenger Corporation, but not including street, suburban, or

interurban electric railways not operated as part of the general system

of rail transportation.

(s) Subsidy cost of a direct loan means the net present value, at

the time when the direct loan is disbursed, of the following estimated

cash flows:

(1) Loan disbursements;

(2) Repayments of principal; and

(3) Payments of interest and other payments by or to the Government

over the life of the loan after adjusting for estimated defaults,

prepayments, fees, penalties, and other recoveries; including the

effects of changes in loan terms resulting from the exercise by the

borrower of an option included in the loan contract.

(t) Subsidy cost of a loan guarantee means the net present value,

at the time when the guaranteed loan is disbursed, of the following

estimated cash flows:

(1) Payments by the Government to cover defaults and delinquencies,

[[Page 27493]]

interest subsidies, or other payments; and

(2) The payments to the Government including origination and other

fees, penalties and recoveries.

Sec. 260.5 Eligible purposes.

(a) Financial assistance under this part is available solely to:

(1) Acquire, improve, or rehabilitate intermodal or rail freight or

passenger equipment or facilities, including track, components of

track, bridges, yards, buildings, and shops;

(2) Refinance outstanding debt incurred for purposes described in

paragraph (a)(1) of this section; or

(3) Develop or establish new intermodal or railroad facilities.

(b) Financial assistance under this part cannot be used for

railroad operating expenses.

Sec. 260.7 Priority consideration.

When evaluating applications, the Administrator will give priority

consideration (but not necessarily in the following order) to projects

that:

(a) Enhance public safety;

(b) Enhance the environment;

(c) Promote economic development;

(d) Enable United States companies to be more competitive in

international markets;

(e) Are endorsed by the plans prepared under section 135 of title

23, United States Code, by the State or States in which they are

located; or

(f) Preserve or enhance rail or intermodal service to small

communities or rural areas.

Sec. 260.9 Loan terms.

The maximum repayment period for direct loans and guaranteed loans

under this part is 25 years from the date of initial disbursement. In

general, the financial assistance provided will be required to be

repaid prior to the end of the useful life of the project it is used to

fund.

Sec. 260.11 Investigation charge.

(a) Applicants for financial assistance under this part may be

required to pay an investigation charge of one-half of one percent of

the principal amount of the direct loan or the loan to be guaranteed.

(b) When an investigation charge is assessed, one-half of the

investigation charge shall be paid by Applicant at the time a formal

application is submitted to FRA.

(c) Within 60 days after the date of filing of the application,

Applicant shall pay to the Administrator the balance of the

investigation charge.

Sec. 260.13 Credit reform.

(a) The Federal Credit Reform Act of 1990, 2 U.S.C. 661, requires

Federal agencies to set aside the subsidy cost of new credit assistance

provided in the form of direct loans or loan guarantees. The subsidy

cost will be the estimated long term cost to the Government of the loan

or loan guarantee. The subsidy cost associated with each direct loan or

loan guarantee, which the Administrator must set aside, may be funded

by Federal appropriations, direct payment of a Credit Risk Premium by

the Applicant or a non-Federal infrastructure partner on behalf of the

Applicant, or any combination thereof.

Sec. 260.15 Credit risk premium.

(a) Where available Federal appropriations are inadequate to cover

the subsidy cost, a non-Federal infrastructure partner may pay to the

Administrator a Credit Risk Premium adequate to cover that portion of

the subsidy cost not covered by Federal appropriations. Where there is

no Federal appropriation, the Credit Risk Premium must cover the entire

subsidy cost.

(b) The amount of the Credit Risk Premium required for each direct

loan or loan guarantee, if any, shall be established by the

Administrator. The Credit Risk Premium shall be determined based on the

credit risk and anticipated recovery in the event of default, including

the recovery of collateral.

(c) The Credit Risk Premium must be paid before the disbursement of

a direct or guaranteed loan. Where the borrower draws down the direct

or guaranteed loan in several increments, the borrower may pay a

portion of the total Credit Risk Premium for each increment equal to

the proportion of that increment to the total amount of the direct or

guaranteed loan.

(d) Each direct loan and loan guarantee made by the Administrator

will be included in the single cohort of direct loans and loan

guarantees made during that same fiscal year. When all obligations in a

cohort have been satisfied or liquidated, the amount of Credit Risk

Premiums, paid by applicants or infrastructure partners, remaining in

the cohort, after deductions made to mitigate losses from any loan or

loan guarantee in the cohort, together with interest accrued thereon,

will be repaid on a pro rata basis to each original payor of a Credit

Risk Premium for any obligation which was fully satisfied. If the

Administrator's estimate of the default risk cost of each loan is

accurate, the aggregate of Credit Risk Premiums associated with each

cohort of loans will fully offset all losses in the cohort and none

will remain to be returned to the payees.

Subpart B--FRA Policies and Procedures for Evaluating Applications

for Financial Assistance

Sec. 260.17 Credit Risk Premium analysis.

(a) When Federal appropriations are not available to cover the

total subsidy cost, the Administrator will determine the Credit Risk

Premium necessary for each direct loan or loan guarantee by estimating

the credit risk and the potential recovery in the event of a default of

each project evaluating the factors described in paragraphs (b) and (c)

of this section.

(b) Establishing the credit risk. (1) Where an Applicant has

received a recent credit rating from one or more nationally recognized

rating agencies, that rating will be used to estimate the credit risk.

(2) Where Applicant has not received a credit rating from a credit

rating agency, the Administrator will determine the credit risk based

on an evaluation of the following factors:

(i) Business risk, based on Applicant's:

(A) Industry outlook;

(B) Market position;

(C) Management and financial policies;

(D) Capital expenditures; and

(E) Operating efficiency.

(ii) Financial risk, based on Applicant's past and projected:

(A) Profitability;

(B) Liquidity;

(C) Financial strength;

(D) Size; and

(E) Level of capital expenditures; and

(iii) Project risk, based on the proposed project's:

(A) Potential for improving revenues, profitability and cash flow

from operations; and

(B) Reliance on third parties for success;

(c) The potential recovery in the event of a default will be based

on:

(1) Nature of the Applicant's assets; and

(2) Liquidation value of the collateral offered, including the

terms and conditions of the lien securing the collateral.

Sec. 260.19 Preapplication meeting.

Potential Applicants may request a meeting with the FRA Assistant

Administrator for Railroad Development to discuss the nature of the

project being considered. Applicants must be prepared to provide at

least the following information:

[[Page 27494]]

(a) Applicant's name, address, and contact person;

(b) Name of the proposed infrastructure partner(s), if any,

including the identification of potential amounts of funding from each;

(c) Amount of the direct loan or loan guarantee request, and a

description of the technical aspects of the project including a map of

the existing railroad lines with the location of the project indicated;

(d) Brief description and estimate of the economic impact,

including future demand for service, improvements that can be achieved,

the project's relation to the priorities listed in Sec. 260.5, along

with any feasibility, market or other studies that may have been done

as attachments;

(e) Amount of Applicant's equity and a description of collateral

offered, with estimated values, including the basis of such, to be

offered as security for the loan;

(f) If applicable, the names and addresses of the Applicant's

parent, affiliates, and subsidiary corporations, if any, and a

description of the ownership relationship and the level of guarantee,

if any, to be offered;

(g) For existing companies, a current balance sheet and an income

statement not more than 90 days old and financial statements for the

borrower and any parent, affiliates, and subsidiaries for at least the

four most recent years; and

(h) Information relevant to the potential environmental impacts of

the project in the context of applicable Federal law.

Subpart C--Applications for Financial Assistance

Sec. 260.21 Eligibility.

(a) The Administrator may make a direct loan to an Applicant, or

guarantee the payment of the principal balance and any interest of an

obligation of an Applicant prior to, on, or after the date of execution

or the date of disbursement of such obligation, if the proceeds of such

direct loan or obligation shall be, or have been, used by the Applicant

for the eligible purposes listed in Sec. 260.3(a) (1) and (2).

(b) The Administrator may also make a direct loan to an Applicant,

or guarantee a new obligation of an Applicant prior to, or on the date

of execution of such obligation, if the proceeds shall be used for the

eligible purposes listed in Sec. 260.3(b).

Sec. 260.23 Form and content of application generally.

Each application shall include, in the order indicated and

identified by applicable paragraph numbers and letters corresponding to

those used in this section, the following information:

(a) Full and correct name and principal business address of the

Applicant;

(b) Date of Applicant's incorporation, or organization if not a

corporation, and name of the government, State or territory under the

laws of which it was incorporated or organized. If Applicant is a

partnership, association, or other form of organization other than a

corporation, a full description of the organization should be

furnished;

(c) Name, title, and address of the person to whom correspondence

regarding the application should be addressed;

(d) A statement of whether the project involves another railroad or

other participant, through joint execution, coordination, or otherwise;

if so, description of the relative participation of Applicant and such

other railroad or participant, including financial statements (if

applicable) and financing arrangements of each participant, portion of

the work to be performed by each participant, and anticipated level of

usage of the equipment or facility of each participant when the work is

completed, along with a statement by a responsible officer or official

of the other railroad or participant that the information provided

reflects their agreement on these matters;

(e) A detailed description of the amount and timing of the

financial assistance that is being requested and its purpose or

purposes, including:

(1) Detailed description of the project and its purpose or

purposes;

(2) A description of all facilities or equipment and the physical

condition of such facilities or equipment included in or directly

affected by the proposed project;

(3) Each part or sub-part into which the project may reasonably be

divided and the priority and schedule of expenditure for each part or

sub-part; and

(4) Proposed dates of commencement and completion of the project

and estimated timing of the expenditure of the proceeds of the

obligation;

(f) A listing and description of the collateral to be offered the

Administrator in connection with any financial assistance provided;

Applicant's opinion of the value of this security and the basis for

such opinion; in the case of leased equipment to be rehabilitated or

improved with the proceeds of the obligation proposed to be guaranteed,

Applicant shall State, in addition to the above, whether the lease

provides for, or the lessor will permit, encumbrance of the leasehold

or subordination of the lessor's interest in the equipment to the

Administrator;

(g) A statement, in summary form, showing financial obligations to

or claims against the United States or obligations for which the United

States is guarantor, if any, by Applicant or any affiliated corporate

entity of the Applicant or the Applicant's parent as of the date of the

application, including:

(1) Status of any claims under litigation; and

(2) Any other debits or credits existing between the Applicant and

the United States, showing the department or agency involved in such

loans, claims and other debts;

(h) An analysis that includes:

(1) A statement, together with supporting evidence including copies

of all market analyses and studies that have been performed to

determine present and future demand for rail services or facilities,

that the financing is justified by present and future probable demand

for rail services or facilities, will meet existing needs for such

services or facilities, and will provide shippers or passengers with

improved service;

(2) Description of the impact of the project upon the projected

freight or passenger traffic to be originated, terminated, or carried

by the Applicant for at least the five years immediately following

completion of the project;

(3) Explanation of the manner in which the project will increase

the economical and efficient utilization of equipment and facilities;

and

(4) Description of cost savings or any other benefit which would

accrue to the Applicant from the project;

(i) A statement as to how the project will contribute to, or

enhance, the safe operation of the railroad, considering such factors

as the occupational safety and health of the employees and the

improvement of the physical and other conditions that have caused or

may cause serious injury or loss of life to the public;

(j) A statement of Applicant's maintenance program for its entire

rail system and planned maintenance program for the equipment or

facilities financed by the proceeds of the financial assistance;

(k) A certified statement in the form contained in Sec. 260.31(a)

that Applicant will pay to the Administrator, in accordance with

Sec. 260.11, the investigation charge with respect to the application;

(l) Information relevant to the potential environmental impacts of

the project in the context of applicable Federal laws;

[[Page 27495]]

(m) Any additional information that the Applicant deems appropriate

to convey a full and complete understanding of the project, the

project's relations to the priorities listed in Sec. 260.5, and its

impact or to assist the Administrator in making the statutorily

prescribed findings; and

(n) Any other information which the Administrator may deem

necessary concerning an application filed under this part;

(o) Railroad applicants must also submit copies of applications for

financing for the project in the private sector, including terms

requested, from at least two commercial lenders who regularly provide

funding to U.S. corporations and any lending institution that has

provided credit to the railroad applicant within 5 years prior to the

date the application is submitted, and their responses refusing to

provide such financing.

Sec. 260.25 Additional information for Applicants not having a credit

rating.

Each application submitted by Applicants not having a recent credit

rating from one or more nationally recognized rating agencies shall

include, in the order indicated and identified by applicable numbers

and letters corresponding to those used in this section, the following

information:

(a) A narrative statement detailing management's business plan to

enhance Applicant's ability to provide rail services including a

discussion of the following:

(1) Applicant's current and prospective traffic base, including by

commodity and geographic region, major markets served, major

interchange points, and market development plans;

(2) Applicant's current operating patterns, and plans, if any, to

enhance its ability to serve its current and prospective traffic base;

(3) System-wide plans to maintain equipment and rights-of-way at

current or improved levels; and

(4) Specific plans for rationalization of marginal or uneconomic

services;

(b) Detailed financial information, including:

(1) Audited financial statements, certified by Applicant's

independent public accountants, for the four calendar years immediately

preceding the date of filing of the application, including:

(i) A copy of Applicant's most recent year-end general balance

sheet and a copy of Applicant's most recent unaudited general balance

sheet as of a date no less recent than the end of the third month

preceding the date of filing of the application; and

(ii) Applicant's most recent annual income statement certified by

Applicant's independent public accountants and a spread sheet showing

unaudited monthly and year-to-date income statement data for the

calendar year in which the application is filed. For those months

preceding the date of the application, the income statement data shall

be reported on an actual basis and so noted. For those months between

the date of the application and the end of the year, the income

statement data shall be presented on a forecasted basis and so noted

and shall be submitted in conjunction with a forecasted balance sheet

as of the year end;

(2) Projected financial statements, including:

(i) Spread sheets showing for each of the four years subsequent to

the year in which the application is filed, both before and after

giving effect to the proceeds of the assistance requested in the

application:

(A) Forecasted annual income statement;

(B) Forecasted year-end balance sheets. These spread sheets shall

be accompanied by a statement setting forth the bases for such

forecasts; and

(C) A spread sheet showing changes in financial position for the

year in which the application is filed, including the period ending on

the date of the application based upon actual data and the period from

the date of the application to the end of the year, based upon

estimated and forecasted data;

(c) A narrative description of Applicant's operations, management's

financial policies, and financial performance goals;

(d) Capital spending plans for the next five years;

(e) Cash flow projections;

(f) Contingency plans for termination of the project before

completion, if necessary; and

(g) A narrative description of Applicant's management team,

including:

(1) Rail experience of top management;

(2) Management's plans for achieving growth and its long-term

capital spending plan; and

(3) A narrative description of Applicant's workforce and the

historical rate of employee turnover.

Sec. 260.27 Additional information for loan guarantees.

Applications for a loan guarantee shall also include in the order

indicated and identified by applicable numbers and letters

corresponding to those used in this section, the following information:

(a) With respect to each existing obligation to be refinanced or

proposed obligation:

(1) A certified copy of proposed or executed obligation agreements;

(2) A detailed description of the obligation, and a description of

the series or issue of which the obligation is, or will be a part,

including:

(i) Effective date, or anticipated effective date;

(ii) Where a guarantee is sought for an outstanding obligation

being refinanced, actual effective rate of interest; or where the

obligation is new, the terms of the proposed obligation including the

proposed effective rate of interest; and

(iii) All related documents, whether executed or proposed; and

(b) With respect to each existing holder or prospective lender, a

statement as to:

(1) Full and correct name and principal business address;

(2) Reference to applicable provisions of law and the charter or

other governing instruments conferring authority on the holder of the

obligation or prospective lender;

(3) Brief statement of the circumstances and negotiations leading

to the agreement by the holder or prospective lender to make the loan;

(4) Brief statement of the nature and extent of any affiliation or

business relationship between the holder or prospective lender and the

Applicant or any of Applicant's directors, partners, or principal

executive officers; and

(5) Full and complete statement of all sums to be provided by the

holder or to be provided by the prospective lender in connection with

the proposed obligation including:

(i) Name and address of each person to whom the payment has been

made or will be made and nature of any affiliation, association, or

prior business relationship between any person named in this paragraph

and the holder or prospective lender or any of its directors, partners,

or officers; and

(ii) Amount of the cash payment, or the nature and value of other

consideration.

Sec. 260.29 Required exhibits.

There shall be filed with and made a part of each application and

copy thereof the following exhibits. While the application is pending,

when actual data become available in place of the estimated or

forecasted data required in the exhibits under this part, such actual

data must be reported promptly to the Administrator in the form

required in the appropriate exhibit. All forecasted data required in

the exhibits under this part must be based on the assumption that the

project will be funded on the January 1 next following the date of the

application.

[[Page 27496]]

(a) Exhibit A. Map of Applicant's existing railroad with location

of project indicated, if appropriate;

(b) Exhibit B. With respect to equipment proposed to be

rehabilitated, improved, maintained, or acquired in the application, a

statement indicating number of units and in-service or out-of-service

status and, as appropriate:

(1) For locomotives, service type, age, size, horsepower, name of

builder, description of work, and unit cost of proposed work; and

(2) For freight and passenger cars or intermodal equipment,

information as to service type (box, gondola, flat, etc.), age,

capacity, description of work, and unit costs of proposed work; and

(c) Exhibit C. With respect to the maintenance, rehabilitation,

improvement, acquisition, or construction of facilities proposed in the

application, a statement showing the track class, as defined by the FRA

Track Safety Standards in part 213 of this chapter, and maximum

allowable speed under which each line on which maintenance,

rehabilitation, improvement, acquisition or construction is proposed

has been and is being operated and the reasons therefor, the track

class, maximum allowable speed, and signal requirements necessary in

the judgment of the railroad to provide safe, reliable and competitive

rail services over such lines, and the highest track class and maximum

allowable speed at which each such line will be designated when the

proposed project is completed.

Sec. 260.31 Execution and filing of the application.

(a) The original application shall bear the date of execution, be

signed in ink by or on behalf of the Applicant, and shall bear the

corporate seal in the case of an Applicant which is a corporation.

Execution shall be by all partners if a partnership, unless

satisfactory evidence is furnished of the authority of a partner to

bind the partnership, or if a corporation, an association or other

similar form of organization, by its president or other executive

officer having knowledge of the matters therein set forth. Persons

signing the application on behalf of the Applicant shall also sign a

certificate in form as follows:

(Name of official) certifies that he or she is the (Title of

official) of the (Name of Applicant); that he or she is authorized

on the part of the Applicant to sign and file with the Administrator

this application and exhibits attached thereto; that the consent of

all parties whose consent is required, by law or by binding

commitment of the Applicant, in order to make this application has

been given; that he or she has carefully examined all of the

statements contained in such application and the exhibits attached

thereto and made a part thereof relating to the aforesaid (Name of

Applicant); that he or she has knowledge of the matters set forth

therein and that all such statements made and matters set forth

therein are true and correct to the best of his or her knowledge,

information, and belief; and that Applicant will pay the balance of

the investigation charge in accordance with Sec. 260.11.

(Name of official)

(Date)

(b) There shall be made a part of the original application the

following certificate by the Chief Financial Officer or equivalent

officer of the Applicant:

(Name of officer) certifies that he or she is (Title of officer)

of (Name of Applicant); that he or she has supervision over the

books of accounts and other financial records of the affected

Applicant and has control over the manner in which they are kept;

that such accounts are maintained in good faith in accordance with

the effective accounting practices; that such accounts are adequate

to assure that proceeds from the financing being requested will be

used solely and specifically for the purposes authorized; that he or

she has examined the financial statements and supporting schedules

included in this application and to the best of his or her knowledge

and belief those statements accurately reflect the accounts as

stated in the books of account; and that, other than the matters set

forth in the exceptions attached to such statements, those financial

statements and supporting schedules represent a true and complete

statement of the financial position of the Applicant and that there

are no undisclosed assets, liabilities, commitments to purchase

property or securities, other commitments, litigation in the courts,

contingent rental agreements, or other contingent transactions which

might materially affect the financial position of the Applicant.

(Name of official)

(Date)

(c) The Applicant shall pay the investigation charge in accordance

with Sec. 260.11.

(d) The application shall be accompanied by a transmittal letter in

the following form:

Re Application for financial assistance under the Railroad

Rehabilitation and Improvement Financing.

Federal Railroad Administrator,

c/o the Associate Administrator for Railroad Development of the

Federal Railroad Administration, Department of Transportation,

Washington, D.C.

Dear Sir or Madam: Being duly authorized by (jointly and

severally/if more than one) (the ``Applicant'') to convey the

understandings hereinafter set forth, I respectfully submit this

application and remit its investigation fee in the amount equal to

one-quarter of one percent of the principal amount of the (direct

loan/loan guarantee) sought. By this filing, Applicant requests the

Administrator to investigate the application and make the necessary

findings upon which Applicant's eligibility for a direct loan or

loan guarantee may be determined.

Applicant understands that neither the acceptance of this

filing, the deposit of the investigation charge, nor the

commencement of an investigation acknowledges the sufficiency of the

application's form, content or merit. Furthermore, Applicant

understands that the Administrator will incur numerous expenses by

this filing with respect to the investigation of the application,

the appraisal of security being offered, and the making of the

necessary determinations and findings, and promises to pay, within

60 days, an additional investigation fee in the amount equal to one-

quarter of one percent of the principal amount of the direct loan or

guarantee sought.

Applicant understands that the Administrator will establish the

amount of Credit Risk Premium due from Applicant, if any, as

provided in Sec. 260.15. Applicant agrees to pay such Credit Risk

Premium prior to the disbursement of direct or guaranteed loan, as

appropriate. Such Credit Risk Premium may be refunded as provided in

Sec. 260.15.

Respectfully submitted.

Applicant(s)

Seal(s)

by Its (Their).

(e) The original application and supporting papers, and five copies

thereof for the use of the Administrator, shall be filed with the

Associate Administrator for Railroad Development of the Federal

Railroad Administration, 1120 Vermont Ave., N.W., Stop 21, Washington,

D.C. 20590. Each copy shall bear the dates and signatures that appear

in the original and shall be complete in itself, but the signatures in

the copies may be stamped or typed.

Sec. 260.33 Information requests.

If an Applicant desires that any information submitted in its

application or any supplement thereto not be released by the

Administrator upon request from a member of the public, the Applicant

must so state and must set forth any reasons why such information

should not be released, including particulars as to any competitive

harm which would probably result from release of such information. The

Administrator will keep such information confidential to the extent

permitted by law.

Sec. 260.35 Environmental assessment.

(a) The provision of financial assistance by the Administrator

under this Part is subject to a variety of environmental and historic

preservation statutes and implementing regulations including the

National Environmental Policy Act (``NEPA'') (42 U.S.C. 4332 et

[[Page 27497]]

seq.), Section 4(f) of the Department of Transportation Act (49 U.S.C.

303(c)), the National Historic Preservation Act (16 U.S.C. 470(f)), the

Coastal Zone Management Act (16 U.S.C. 1451), and the Endangered

Species Act (16 U.S.C. 1531). Appropriate environmental/historic

preservation documentation must be completed and approved by the

Administrator prior to a decision by the Administrator on the

applicant's financial assistance request. FRA's ``Procedures for

Considering Environmental Impacts'' (``FRA's Environmental

Procedures'') (45 FR 40854 (June 16, 1980)) or any replacement

environmental review procedures that the FRA may later issue and the

NEPA regulation of the Council on Environmental Quality (``CEQ

Regulation'') (40 CFR 1500) will govern the FRA's compliance with

applicable environmental/historic preservation review requirements.

(b) The Administrator, in cooperation with the applicant, has the

responsibility to mange the preparation of the appropriate

environmental document. The role of the applicant will be determined by

the Administrator in accordance with the CEQ regulations and section 7

of FRA's environmental procedures.

(c) Depending on the type, size and potential environmental impact

of the project for which the applicant is seeking financial assistance,

FRA will need to (1) prepare an Environmental Impact Statement (EIS) or

(2) prepare or have prepared an Environmental Assessment leading to a

Finding of No Significant Impact or (3) conclude that the project is

categorically excluded from detailed environmental review under section

4 of FRA's environmental procedures. At the discretion of the

Administrator, Applicants may be required to prepare and submit an

environmental assessment of the proposed project or to submit adequate

documentation to support a finding that the project is categorically

excluded from detailed environmental review. If the applicant is a

public agency that has statewide jurisdiction or is a local unit of

government acting through a statewide agency, and meets the

requirements of section 102(2)(D) of NEPA, the applicant may be

requested to prepare the EIS and other environmental documents under

the Administrator's guidance.

(d) Applicants are strongly urged to consult with the Associate

Administrator for Railroad Development at the earliest possible stage

in project development in order to assure that the environmental/

historic preservation review process can be completed in a timely

manner.

(e) Applicants may not initiate any activities that would have an

adverse environmental impact or limit the choice of reasonable

alternatives in advance of the completion of the environmental review

process. This does not preclude development by applicants of plans or

designs or performance of other work necessary to support the

application for financial assistance.

Sec. 260.37 Waivers and modifications.

The Administrator may, upon good cause shown, waive or modify any

requirement of this part not required by law or make any additional

requirements the Administrator deems necessary.

Subpart D--Standards for Maintenance of Facilities Involved in the

Project

Sec. 260.39 Applicability.

This subpart prescribes standards governing the maintenance of

facilities that are being, or have been, acquired, rehabilitated,

improved, or constructed with the proceeds of a direct loan or a

guaranteed loan issued under this part for the period during which any

portion of the principal or interest of such obligation remains unpaid.

Sec. 260.41 Maintenance standards.

(a) When the proceeds of a direct loan or an obligation guaranteed

by the Administrator under this part are, or were, used to acquire,

rehabilitate, improve or construct track, roadbed, and related

structures, Borrower shall, as long as any portion of the principal or

interest of such obligation remains unpaid, maintain such facilities in

at least the highest track class, as defined by FRA Track Safety

Standards in part 213 of this chapter, specified in the Application at

which the rehabilitated, improved, acquired, or constructed track is to

be operated upon completion of the project unless a waiver is granted

in accordance with Sec. 260.37.

(b) When the proceeds of a direct loan or an obligation guaranteed

by the Administrator under this part are, or were, used for equipment

or facilities, the Borrower shall, during the period in which any

portion of the principal or interest in such obligation remains unpaid,

maintain such equipment or facilities in a manner consistent with sound

engineering and maintenance practices and in a condition that will

permit the level of use that existed upon completion of the

acquisition, rehabilitation, improvement or construction of such

equipment or facilities unless a waiver is granted in accordance with

Sec. 260.37.

Sec. 260.43 Inspection and reporting.

(a) Equipment or facilities subject to the provisions of this

subpart may be inspected at such times as the Administrator deems

necessary to assure compliance with the standards set forth in

Sec. 260.41. Each Borrower shall permit representatives of the FRA to

enter upon its property to inspect and examine such facilities at

reasonable times and in a reasonable manner. Such representatives shall

be permitted to use such testing devices as the Administrator deems

necessary to insure that the maintenance standards imposed by this

subpart are being followed.

(b) Each Borrower shall submit to the Administrator annually

financial records and other documents detailing the maintenance

performed and the inspections conducted which demonstrate that the

Borrower has complied with the standards in Sec. 260.41.

Sec. 260.45 Impact on other laws.

Standards issued under this subpart shall not be construed to

relieve the Borrower of any obligation to comply with any other

Federal, State, or local law or regulation.

Subpart E--Procedures To Be Followed in the Event of Default

Sec. 260.47 Events of default for guaranteed loans.

(a) If the Borrower is more than 30 days past due on a payment or

is in violation of any covenant or condition of the loan documents and

such violation constitutes a default under the provisions of the loan

documents, Lender must notify the Administrator in writing and must

continue to submit this information to the Administrator each month

until such time as the loan is no longer in default; and the

Administrator will pay the holder of the obligation, or the holders's

agent, an amount equal to the past due interest on the guaranteed

portion of the defaulted loan. This payment will in no way reduce the

Borrower's obligation to the holder to make all payments of principal

and interest in accordance with the note. If the loan is brought

current, the holder will repay to the Agency any interest payments made

by the Agency, plus accrued interest at the note rate.

(b) If the default has continued for more than 90 days, the

Administrator will pay to the holder of the obligation, or the holder's

agent, 90 percent of the unpaid guaranteed principal. If,

[[Page 27498]]

subsequent to this payment being made, the default is cured and

liquidation is no longer appropriate, the holder will repay such funds

to the Administrator, plus interest at the note rate.

(c) After the default has continued for more than 90 days, the

holder shall expeditiously submit to the Administrator, in writing, its

proposed detailed plan to resolve the default by liquidating the

collateral or by any other means.

If the resolution will require the liquidation of the collateral,

then the holder's plan shall include:

(1) Proof adequate to establish that the holder is legally in

possession of the obligation and a statement of the current loan

balance and accrued interest to date and the method of computing the

interest;

(2) A full and complete list of all collateral, including any

personal and corporate guarantees;

(3) The recommended liquidation methods for making the maximum

collection possible and the justification for such methods, including

recommended action for acquiring and disposing of all collateral and

collecting from any guarantors;

(4) Necessary steps for preservation of the collateral;

(5) Copies of the Borrower's latest available financial statements;

(6) Copies of any guarantor's latest available financial

statements;

(7) An itemized list of estimated liquidation expenses expected to

be incurred along with justification for each expense;

(8) A schedule to periodically report to the Agency on the progress

of liquidation;

(9) Proposed protective bid amounts on collateral to be sold at

auction and a breakdown to show how the amounts were determined;

(10) If a voluntary conveyance is considered, the proposed amount

to be credited to the guaranteed debt;

(11) Legal opinions, as appropriate;

(12) The holder will obtain an independent appraisal on all

collateral securing the loan which will reflect the fair market value

and potential liquidation value. In order to formulate a liquidation

plan that maximizes recovery, the appraisal shall consider the presence

of hazardous substances, petroleum products, or other environmental

hazards, which may adversely impact the market value of the collateral;

and

(13) The anticipated expenses associated with the liquidation will

be considered a cost of liquidation.

(d) The Administrator will inform the lender in writing whether the

Administrator concurs in the lender's liquidation plan. Should the

Administrator and the lender not agree on the liquidation plan,

negotiations will take place between the Administrator and the lender

to resolve the disagreement. When the liquidation plan is approved by

the Administrator, the lender will proceed expeditiously with

liquidation. The liquidation plan may be modified when conditions

warrant. All modifications must be approved in writing by the

Administrator prior to implementation.

(e) Lender will account for funds during the period of liquidation

and will provide the Administrator with reports at least quarterly on

the progress of liquidation including disposition of collateral,

resulting costs, and additional procedures necessary for successful

completion of the liquidation.

(f) Within 30 days after final liquidation of all collateral, the

lender will prepare and submit to the Administrator a final report in

which the lender must account for all funds during the period of

liquidation, disposition of the collateral, all costs incurred, and any

other information necessary for the successful completion of

liquidation. Upon receipt of the final accounting and report of loss,

the Administrator may audit all applicable documentation to confirm the

final loss. The lender will make its records available and otherwise

assist the Administrator in making any investigation.

(g) The Administrator shall be subrogated to all the rights of the

holder with respect to the Borrower to the extent of the

Administrator's payment to the holder under this section.

(h) When the Administrator finds the final report to be proper in

all respects:

(1) All amounts recovered in liquidation shall be paid to the

Administrator; and

(2) The remaining obligation of the Administrator to the holder

under the guarantee, if any, will be paid directly to holder by the

Administrator.

(i) The Administrator shall not be required to make any payment

under paragraphs (a) and (b) of this section if the Administrator

finds, before the expiration of the periods described in such

subsections, that the default has been remedied.

(j) The Administrator shall have the right to charge Borrower

interest, penalties and administrative costs, including all of the

United States' legally assessed or reasonably incurred expenses of its

counsel and court costs in connection with any proceeding brought or

threatened to enforce payment or performance under applicable loan

documents, in accordance with OMB Circular A-129, as it may be revised

from time to time.

Sec. 260.49 Events of default for direct loans.

(a) Upon the Borrower's failure to make a scheduled payment, or

upon the Borrower's violation of any covenant or condition of the loan

documents which constitutes a default under the provisions of the loan

documents, the Administrator, at the Administrator's discretion may:

(1) Exercise any and all remedies available under the provisions of

the loan agreement and other loan documents, including any guarantees,

or inherent in law or equity;

(2) Terminate further borrowing of funds;

(3) Take possession of assets pledged as collateral; and

(4) Liquidate pledged collateral.

(b) The Administrator shall have the right to charge Borrower

interest, penalties and administrative costs, including all of the

United States' legally assessed or reasonably incurred expenses of its

counsel and court costs in connection with any proceeding brought or

threatened to enforce payment or performance under applicable loan

documents, in accordance with OMB Circular A-129, as it may be revised

from time to time.

Sec. 260.51 Avoiding defaults.

Borrowers are encouraged to contact the Administrator prior to the

occurrence of an event of default to explore possible avenues for

avoiding such an occurrence.

Subpart F--Loan Guarantees--Lenders

Sec. 260.53 Conditions of guarantee.

(a) The percentage of the obligation for which Applicant seeks a

guarantee is a matter of negotiation between the Lender and the

Applicant, subject to the Administrator's approval. The maximum

percentage of the total obligation that the Administrator will

guarantee is 80 percent. The amount of guarantee allowed will depend on

the total credit quality of the transaction and the level of risk

believed to be assumed by the Administrator.

(b) A guarantee under this part 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. In addition,

[[Page 27499]]

the guarantee will be unenforceable by the lender to the extent any

loss is occasioned by the violation of usury laws, negligent servicing,

or failure to obtain the required security regardless of the time at

which the Administrator acquires knowledge thereof. Any losses

occasioned will be unenforceable to the extent that loan funds are used

for purposes other than those specifically approved by FRA in its

guarantee.

(c) The Administrator may guarantee an Applicant's obligation to

any lender provided such lender can establish to the satisfaction of

the Administrator that it has the legal authority and sufficient

expertise and financial strength to operate a successful lending

program. Loan guarantees will only be approved for lenders with

adequate experience and expertise to make, secure, service, and collect

the loans.

(d) The lender may sell all of the guaranteed portion of the loan

on the secondary market, provided the loan is not in default, or retain

the entire loan.

(e) When a guaranteed portion of a loan is sold to a holder, the

holder shall succeed to all rights of the lender under the loan

guarantee to the extent of the portion purchased. The lender will

remain bound to all obligations under the loan guarantee and the

provisions of this part. In the event of material fraud, negligence or

misrepresentation by the lender or the lender's participation in or

condoning of such material fraud, negligence or misrepresentation, the

lender will be liable for payments made by the Agency to any holder.

Sec. 260.55 Lenders' functions and responsibilities.

Lenders have the primary responsibility for the successful delivery

of the program consistent with the policies and procedures outlined in

this part. All lenders obtaining or requesting a loan guarantee from

the Administrator are responsible for:

(a) Loan processing. Lender shall be responsible for all aspects of

loan processing, including:

(1) Processing applications for the loan to be guaranteed;

(2) Developing and maintaining adequately documented loan files;

(3) Recommending only loan proposals that are eligible and

financially feasible;

(4) Obtaining valid evidence of debt and collateral in accordance

with sound lending practices;

(5) Supervising construction, where appropriate;

(6) Distributing loan funds;

(7) Servicing guaranteed loans in a prudent manner, including

liquidation if necessary; and

(8) Obtaining the Administrator's approval or concurrence as

required in the loan guarantee documentation;

(b) Credit evaluation. Lender must 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. The lender must have an adequate underwriting process

to ensure that loans are reviewed by other than the originating

officer. There must be good credit documentation procedures;

(c) Environmental responsibilities. Lender has a responsibility to

become familiar with Federal environmental requirements; to consider,

in consultation with the prospective borrower, the potential

environmental impacts of their proposals at the earliest planning

stages; and to develop proposals that minimize the potential to

adversely impact the environment. Lender must alert the Administrator

to any controversial environmental issues related to a proposed project

or items that may require extensive environmental review. Lender must

assist borrowers as necessary to comply with the environmental

requirements outlined in this part. Additionally, lender will 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 problems;

(d) Loan closing. The lender will conduct or arrange for loan

closings; and

(e) Fees and Charges. The lender may establish charges and fees for

the loan provided they are similar to those normally charged other

Applicants for the same type of loan in the ordinary course of

business.

Sec. 260.57 Lender's loan servicing.

(a) The lender is responsible for servicing the entire loan and for

taking all servicing actions that are prudent. This responsibility

includes but is not limited to the collection of payments, obtaining

compliance with the covenants and provisions in the loan documents,

obtaining and analyzing financial statements, verification of tax

payments, and insurance premiums, and maintaining liens on collateral.

(b) The lender must report the outstanding principal and interest

balance on each guaranteed loan semiannually.

(c) At the Administrator's request, the lender will periodically

meet with the Administrator to ascertain how the guaranteed loan is

being serviced and that the conditions and covenants of the loan

documents are being enforced.

(d) The lender must obtain and forward to the Administrator the

Borrower's annual financial statements within 120 days after the end of

the Borrower's fiscal year and the due date of other reports as

required by the loan documents. The lender must analyze the financial

statements and provide the Agency with a written summary of the

lender's analysis and conclusions, including trends, strengths,

weaknesses, extraordinary transactions, and other indications of the

financial condition of the Borrower.

(e) Neither the lender nor the holder shall alter, nor approve any

amendments of, any loan instrument without the prior written approval

of the Administrator.

Issued in Washington, D.C. on May 13, 1999.

Donald M. Itzkoff,

Acting Administrator.

[FR Doc. 99-12542 Filed 5-19-99; 8:45 am]

BILLING CODE 4910-06-P