Exhibit H to Subpart D of Part 1944 - Information Pertaining to Preparation of Notes or Bonds and Bond Transcript Documents for Public Body Applicants

This exhibit includes information for use by public body applicants in the preparation and issuance of evidences of debt (“bonds” or “debt instruments”). This information is made available to applicants as appropriate for application processing and loan docket preparation.

(1) Policies. (i) This exhibit outlines the policies of the Farmers Home Administration (FmHA) or its successor agency under Public Law 103-354 with respect to preparation and issuance of evidences of debt (hereinafter sometimes referred to as “bonds” or “debt instruments”).

(ii) Preparation of the bonds and the bond transcript documents will be the responsibility of the applicant. Public body applicants will obtain the services and opinion of recognized Bond Counsel with respect to the validity of a bond issue. The applicant normally will be represented by a local attorney who will obtain the assistance of a recognized Bond Counsel firm which has had experience in municipal financing with such investors as investment dealers, banks, and insurance companies.

(iii) At the option of the applicant for issues of $250,000 or less, Bond Counsel may be used for the issuance of a final opinion only and not for the preparation of the other documents and of the bond docket when the applicant, FmHA or its successor agency under Public Law 103-354, and Bond Counsel have agreed in advance as to the method of preparation of the bond transcript documents. Under such circumstances the applicant will be responsible for the preparation of the bond transcript documents.

(iv) At the option of the applicant and with the prior approval from the National Office of FmHA or its successor agency under Public Law 103-354, for issues of $50,000 or less, the applicant need not use Bond Counsel if:

(A) The amount of the issue does not exceed $50,000 and the applicant recognizes and accepts the fact that processing the application may require additional legal and administrative time.

(B) There is a significant cost saving to the applicant particularly with reference to total legal fees after determining what Bond Counsel would charge as compared with what the local attorney will charge without Bond Counsel.

(C) The local attorney is able and experienced in handling this type of legal work.

(D) The applicant understands that, if it is required by FmHA or its successor agency under Public Law 103-354 to refinance its loan pursuant to the statutory refinancing requirements, it will probably have to obtain at its expense a Bond Counsel's opinion at that time.

(E) All bonds will be prepared in accordance with this regulation and will conform as nearly as possible to accepted methods of preparation of similar bonds in the area.

(F) Many matters necessary to comply with FmHA or its successor agency under Public Law 103-354 requirements such as land rights, easements, and organizational documents will be handled by the applicant's local attorney. Specific closing instructions in addition to any requirements of Bond Counsel will be issued by the Office of the General Counsel of the U.S. Department of Agriculture for the guidance of FmHA or its successor agency under Public Law 103-354.

(2) Bond transcript documents. Any questions with respect to FmHA or its successor agency under Public Law 103-354 requirements should be discussed with local FmHA or its successor agency under Public Law 103-354 representatives. Bond Counsel is required to furnish at least two complete sets of the following to the applicant, who will furnish one complete set to FmHA or its successor agency under Public Law 103-354:

(i) Copies of all organizational documents.

(ii) Copies of general incumbency certificate.

(iii) Certified copies of minutes or excerpts therefrom of all meetings of the applicant's governing body at which action was taken in connection with the authorization and issuance of the bonds.

(iv) Certified copies of documents evidencing that the applicant has complied fully with all statutory requirements incident to calling and holding of a favorable bond election, if such an election is necessary in connection with bond issuance.

(v) Certified copies of the resolutions or ordinances or other documents, such as the bond authorizing resolution or ordinance and any resolution establishing rates and regulating the use of the improvement, if such documents are not included in the minutes furnished.

(vi) Copies of official Notice of Sale and affidavit of publication of Notice of Sale where a public sale is required by State statute.

(vii) Specimen bond, with any attached coupons.

(viii) Attorney's no-litigation certificate.

(ix) Certified copies of resolutions or other documents pertaining to the bond award.

(x) Any additional or supporting documents required by Bond Counsel.

(xi) For loans involving multiple advances of FmHA or its successor agency under Public Law 103-354 loan funds, a preliminary approving opinion of Bond Counsel if a final unqualified opinion cannot be obtained until all funds are advanced. The preliminary opinion for the entire issue shall be delivered on or before the first advance of loan funds and state that the applicant has the legal authority to issue the bonds, construct, operate and maintain the facility, and repay the loan subject only to changes during the advance of funds such as litigation resulting from the failure to advance loan funds, and receipt of closing certificates.

(xii) Preliminary approving opinion, if any, and final unqualified approving opinion of recognized Bond Counsel including opinion regarding interest on bonds being exempt from Federal and any State income taxes. On approval of the Administrator, a final opinion may be qualified to the extent that litigation is pending relating to Indian claims that may affect title to land or validity of the obligation.

(3) Interim financing from commercial sources during construction period for loans of $50,000 or more. In all cases where it is possible for funds to be borrowed at reasonable interest rates on an interim basis from commercial sources, such interim financing will be obtained so as to preclude the necessity for multiple advances of FmHA or its successor agency under Public Law 103-354 funds.

(4) Permanent instruments for FmHA or its successor agency under Public Law 103-354 loans to repay interim commercial financing. Such loans will be evidenced by one of the types of instruments in the order of preference shown in paragraph (a)(5) of this exhibit.

(5) Multiple advances of FmHA or its successor agency under Public Law 103-354 funds using permanent instruments. Where interim financing from commercial sources is not available, FmHA or its successor agency under Public Law 103-354 loan proceeds will be disbursed on an “as needed by borrower” basis in amounts not to exceed the amount needed during 30-day periods. FmHA or its successor agency under Public Law 103-354 loans will be evidenced by the following types of instruments chosen in accordance with the following order of preference:

(i) First preference—Form 1944-52. If legally permissible, use Form FmHA or its successor agency under Public Law 103-354 1944-52, “Multiple Family Housing Promissory Note.”

(ii) Second preference—single instrument with amortized installments. If Form FmHA or its successor agency under Public Law 103-354 1944-52 is not legally permissible, use a single instrument showing on the face the full amount of the loan and providing for amortized installments with provisions for entering the date and amount of each FmHA or its successor agency under Public Law 103-354 advance on the reverse thereof or an attachment to the instrument. Form FmHA or its successor agency under Public Law 103-354 1944-52 should be followed to the extent possible. The first amortized payment will be due one amortized payment period following the AED.

See the FMI for Form FmHA or its successor agency under Public Law 103-354 1944-52 for specific instructions.

(iii) Third preference—single instrument with installments of principal plus interest. If a single amortized installment instrument is not legally permissible, use a single instrument providing for specified installments of principal plus accrued interest. The principal should be in an amount best adapted to making principal retirement and interest payments which closely approximate equal installments of combined interest and principal as required by the first two preferences.

(A) The repayment terms described in paragraph (a)(5)(ii) of this exhibit “Second preference” apply.

(B) The instruments shall contain in substance the following provisions:

(1) A statement of principal maturities and due dates.

(2) Payments made on indebtedness evidenced by this instrument, regardless of when made, shall be applied first to interest due through the date of payment and next to principal except that payments made from security depleting sources shall, after payment of interest to the payment date, be applied to the principal last to become due under the instrument and shall not affect the obligation of the borrower to pay the remaining installments as scheduled.

(iv) Fourth preference. If instruments described under the first, second, and third preferences are not legally permissible, use serial bonds with a bond or bonds delivered in the amount of each advance. Bonds will be delivered in the order of their numbers. Such bonds will conform with the minimum requirements of paragraph (7) of this exhibit. Rules for application of payments on serial bonds will be the same as those for principal installment single bonds as set out in the preceding paragraph (5)(iii) of this exhibit.

(6) Multiple advances of FmHA or its successor agency under Public Law 103-354 funds using temporary debt instrument. When none of the instruments described in paragraph (5) of this exhibit are legally permissable or practical, a bond anticipation note or similar temporary debt instrument may be used. The debt instrument will provide for multiple advance of FmHA or its successor agency under Public Law 103-354 loan funds and will be for the full amount of the FmHA or its successor agency under Public Law 103-354 loan. The instrument will be prepared by Bond Counsel and approved by the State Director and OGC. At the same time FmHA or its successor agency under Public Law 103-354 delivers the last advance, the borrower will deliver the permanent bond instrument to FmHA or its successor agency under Public Law 103-354 to replace the temporary debt instrument and the canceled temporary instrument will be delivered to the borrower. The approved debt instrument will show at least the following:

(i) The date from which each advance will bear interest.

(ii) The interest rate.

(iii) A payment schedule providing for interest on outstanding principal at least annually.

(iv) A maturity date which shall be no earlier than the anticipated issuance date of the permanent instrument(s).

(7) Minimum bond specifications. The provisions of paragraph (7) are of this exhibit minimum specifications only, and must be followed to the extent legally permissible.

(i) Type and denominations. Bond resolutions or ordinances will provide that the instrument(s) be either a bond representing the total amount of the indebtedness or Serial bonds in denominations customarily accepted in municipal financing (ordinarily in multiples of not less than $1,000). Single bonds may provide for either repayment of principal plus interest or amortized installments; amortized installments are preferable from the standpoint of FmHA. Coupon bonds will not be used unless required by statute.

(ii) Bond registration. Bonds will contain provisions permitting registration as to both principal and interest. Bonds purchased by FmHA will be registered in the name of “United States of America, Farmers Home Administration, or its successor agency under Public Law 103-354” and will remain so registered at all times while the bonds are held or insured by the United States. The address of FmHA for registration purposes will be that of the FmHA or its successor agency under Public Law 103-354 Finance office.

(iii) Size and quality. Size of bonds and coupons should conform to standard practice. Paper must be of sufficient quality to prevent deterioration through ordinary handling over the life of the loan.

(iv) Date of bonds. Bonds will be dated as of the day of delivery.

(v) Payment date. Insofar as loan payments are consistent with income availability, applicable State statutes, and commercial customs in the preparation of bonds or other evidence of indebtedness, they should be scheduled on a monthly basis either in the bond or other evidence of indebtedness or through the use of a supplemental agreement. Such requirements will be accomplished not later than the time of loan closing. When monthly payments are required, such payments will be scheduled beginning one full month following the date of loan closing or the end of any approved deferment period. Subsequent monthly payments will be scheduled each full month thereafter. In those cases where evidence of indebtedness calls for annual or semiannual payments, they will be scheduled beginning six or twelve full months, respectively following the date of loan closing or the end of any approved deferment period. Subsequent payments will be scheduled each sixty or twelfth full month respectively, thereafter. When the evidence of indebtedness is dated the 29th, 30th, or 31st day of a month, the payment date will be scheduled the 28th day of the month. Borrowers scheduled to make monthly payments will be given a monthly payment card jacket at the time of loan closing. These borrowers will submit payment directly to the Finance Office.

(vi) Place of payment. Payments on bonds purchased by FmHA or its successor agency under Public Law 103-354 should be submitted to the FmHA or its successor agency under Public Law 103-354 Finance Office by the borrower.

(vii) Redemptions. Bonds should contain customary redemption provisions, subject, however, to unlimited right of redemption without premium of any bonds held by FmHA or its successor agency under Public Law 103-354 except to the extent limited by the provisions under the “Third Preference” and “Fourth Preference” in paragraph (5) of this exhibit.

(viii) Additional revenue bonds. Parity bonds may be issued to complete the project. Otherwise, parity bonds may not be issued unless the net revenues (that is, unless otherwise defined by the State statute, gross revenues less essential operation and maintenance expense) for the fiscal year preceding the year in which such parity bonds are to be issued were 120 percent of the average annual debt service requirements on all bonds then outstanding and those to be issued; provided, that this limitation may be waived or modified by the written consent of bondholders representing 75 percent of the then outstanding principal indebtedness. Junior and subordinate bonds may be issued without restriction.

(ix) Scheduling of FmHA or its successor agency under Public Law 103-354 payments when joint financing is involved. In all cases in which FmHA or its successor agency under Public Law 103-354 is participating with another lender in the joint financing of the project to supply funds required by one applicant, the FmHA or its successor agency under Public Law 103-354 payments of principal and interest should approximate amortized installments.

(x) Precautions. The following types of provisions in debt instruments should be avoided.

(A) Provisions for the holder to manually post each payment to the instrument.

(B) Provisions for returning the permanent or temporary debt instrument to the borrower in order that it, rather than FmHA or its successor agency under Public Law 103-354, may post the date and amount of each advance or repayment on the instrument.

(8) Bidding by FmHA or its successor agency under Public Law 103-354. Where a public bond sale is required by State statutes, FmHA or its successor agency under Public Law 103-354 will not normally submit a bid at the advertised sale unless State statutes require a bid to be submitted. Preferably FmHA or its successor agency under Public Law 103-354 will negotiate the purchase with the applicant subsequent to the advertised sale if no acceptable bid is received. In those cases where FmHA or its successor agency under Public Law 103-354 is required to bid, the bid will be made at the applicable FmHA or its successor agency under Public Law 103-354 interest rate.